Topic 3

Topic 3

Credit Applications, Credit Reports, and Contracts

This section provides an important overview of the key laws and regulations designed to protect consumers – and your dealership – during the credit application, reporting and contracting process. We recommend that you bookmark it!

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Know the laws and regulations

Compliance Tips Recommended Practices

Did you know?

If a customer purchases a vehicle with cash or cash equivalents in excess of $10,000, you must file IRS/FinCEN Form 8300 within 15 days.

Compliance Tip

A dealer should be prepared to show that the dealership made a good faith effort to finance a deal with multiple finance sources.

Watch List for 2021

The Uniform Electronic Transactions Act (UETA) was not adopted in Illinois, New York and Washington. Review these states’ laws for any additional requirements concerning the use of electronic signatures.

Recommended Practice

Always have a “permissible purpose” to pull a consumer’s credit report.

The following information is not intended to be legal advice. You should consult with your attorney to ensure that you are in compliance with applicable law.

Since the late 1960s, federal law has restricted the use of credit reports and required creditors to notify consumers of credit decisions and describe credit terms in finance contracts. The federal Consumer Credit Protection Act, passed in 1968, includes the Truth in Lending Act (TILA), the Fair Credit Reporting Act (FCRA), and the Equal Credit Opportunity Act (ECOA), as well as other laws relating to wage garnishments and debt collection practices. The 2003 FACT Act added additional consumer rights, disclosures, and protections concerning credit reports, affiliate information sharing, identity theft protection, and risk-based pricing notices to the FCRA. Title X of the 2010 Dodd-Frank Act, also known as the Consumer Financial Protection Act of 2010, requires additional consumer disclosures in adverse action notices. State laws also govern lease and finance transactions, limit fees and charges in connection therewith, and require certain additional consumer disclosures for motor vehicle finance and lease transactions.

Notably, in March 2020, the CFPB issued proposed regulations allowing debt collectors to contact consumers about time-barred debt, provided the collectors disclose that the consumer can no longer be sued for failing to pay. In its Fall 2020 rulemaking agenda, the CFPB indicated that it plans to finalize this proposal in December 2020.

The Fair Credit Reporting Act (FCRA)

FCRA is a federal law that regulates, among other things, the access, use, and distribution of information that meets the definition of a “consumer report,” including a credit score. For FCRA purposes, a “consumer report” (often informally called a credit report) includes eligibility information contained in such reports, as well as certain information obtained from third parties, such as employer or landlord.

FCRA requires a dealer to have a “permissible purpose” to obtain a consumer report. A consumer’s written consent is the best proof of a permissible purpose and may be required to access consumer reports in a state like Vermont, and may also be required under certain contracts with the credit bureaus. Most credit application forms contain language providing for such written consent. However, a dealer may also have a permissible purpose to obtain a consumer report when the consumer clearly understands that he or she is initiating a transaction to purchase or lease a vehicle and the dealer has a legitimate business need for the credit report to complete the transaction. Many dealers have reason to want a consumer report earlier in the process, in which case they must rely on written authorization from the consumer to obtain the report, as the FTC has stated that pulling a consumer report for comparison shopping purposes or for cash customers is not permitted under FCRA without the customer’s prior written consent to do so.

FCRA also requires giving the consumer an “adverse action notice” if the creditor used a credit report, in whole or in part, as a factor in denying credit to the consumer or offering the consumer credit on terms less favorable than those the consumer requested (unless the consumer accepts the less favorable terms). Adverse action notices are discussed below.

The Equal Credit Opportunity Act (ECOA) and Regulation B

ECOA and its implementing regulation, Regulation B, prohibit auto dealers from discriminating against applicants for credit on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act. Certain state laws include additional protected class categories. The CFPB has entered into consent orders with several finance sources over alleged violations of the ECOA’s antidiscrimination provisions. As a result, many finance sources require dealers to implement and maintain a fair lending compliance program.

If gross income rather than net income is used in determining a consumer’s repayment ability, ECOA will generally require that nontaxable income be “grossed up” to make it equivalent to taxable income in order to avoid allegations of a disparate impact on applicants, such as those with disabilities and the elderly, both of whom are more likely than the general applicant pool to receive substantial nontaxable income. ECOA has other considerations relating to income, e.g., a creditor may not discount part-time income in evaluating a consumer’s creditworthiness.

The Federal Reserve Board (the agency responsible for Regulation B prior to such responsibility being transferred to the BCFP) staff has long held the view that ECOA does not apply to a lease transaction because it is not “credit” as defined by the ECOA. While some courts have taken the opposite (and in many practitioners’ view, incorrect) position, most lessors in the industry treat leases as though they are subject to the ECOA as a best practice. Given the uncertainty over whether the CFPB might choose to treat leases as subject to the ECOA, doing so might be an excellent practice.

ECOA also requires that credit application forms (or scripts, as applicable) 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.

There has been a recent increase in fair lending activity at the state level. New York is an example of a state with its own fair lending rules, and recently New York extended protected class coverage to two additional categories: military status and sexual orientation. The New York Department of Financial Institutions (NYDFS) also issued a reminder to supervised entities and sales finance companies that engage in indirect automobile lending through third parties that they must comply with New York’s Fair Lending Law, including, but not limited to the development of a fair lending compliance program, despite the federal rollback. Additionally, the NYDFS guidance provides that these entities may be liable for pricing disparities or discrimination based on the dealer reserve amount.

In another recent example, Connecticut imposed a new requirement for sales finance companies to acquire and maintain information about the ethnicity, race, and sex of applicants for motor vehicle retail installment contracts. However, a temporary “no action” memo was issued by the Connecticut Banking Commissioner indicating that Connecticut’s Department of Banking will not enforce that new law pending receipt of an advisory opinion it requested from the BCFP. Under ECOA, this type of data collection is authorized for mortgage, not auto transactions.

Adverse Action Notice Obligations Under ECOA and FCRA

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.

ECOA mandates the following time frames:

30 days after receipt of a completed credit application concerning the approval of, counteroffer to, or adverse action on an application;
30 days after taking adverse action on an incomplete application, unless notice is provided of an incomplete application as set for in Regulation B;
30 days after taking adverse action on an existing account; or
90 days after notifying the applicant of a counteroffer (if the applicant does not expressly accept or use the credit offered) for notifying the applicant of the credit decision, whether favorable or unfavorable, (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 adverse action notice is not required if the dealer denies an application by providing a counteroffer which the consumer accepts.

An ECOA adverse action notice must be in writing and, at a minimum, include either specific reasons why the credit application was denied or counteroffered, or tell the consumer how they may contact the dealership within 60 days to get the reasons along with the name, address and telephone number of the person who can provide the specific reason(s) for the adverse action. An ECOA adverse action notice must also include an antidiscrimination notice similar to the one in 12 C.F.R. 1002.9(b). There are additional state laws relating to adverse action as well.

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.

The FCRA adverse action definition is more broadly drafted but includes the adverse action definition as set forth under the ECOA. Under FCRA, an adverse action notice is required when: (i) taking an adverse action with respect to a consumer, based in whole or in part on information contained in the consumer report; (ii) denying consumer credit or increase of credit, based on information obtained from a person other than credit reporting agency (e.g. credit worthiness, credit standing, credit capacity, character, reputation, etc.); (iii) taking adverse action based upon information, in whole or in part, received from an affiliate. Generally, a single form can be used to comply with both FCRA and ECOA adverse action notice requirements. Although, additional language is required if the dealer’s decision was based in whole or in part on information received directly from a third party that is not a consumer reporting agency.

An adverse action notice must inform the consumer of the adverse action; either give up to four primary reasons for the adverse action (or tell the consumer how they may contact the dealership within 60 days to get the reasons); identify any consumer reporting agency that provided a credit report or credit score used by the dealer; provide the consumer’s credit score, information about the credit score, and up to four to five “key factors” that adversely affected the credit score (up to four key factors unless one of the factors is the number of recent credit inquiries, in which case up to five key factors). The notice must contain other mandatory language as well. A sample adverse action notice is attached at the end of this Topic.

If the adverse action is completely due to the credit score, the primary reasons must indicate which factors in the credit score caused the adverse action. Using a general statement like “credit score too low” as a primary reason for adverse action does not comply with ECOA.

The primary reasons for the adverse action required by ECOA are not necessarily the same as the FCRA-required “key factors” that must be disclosed to describe what most adversely affected the credit score. These “key factors” are related to the credit score only, not the consumer’s overall application for credit, which may also consider other factors, for example, income and ability to repay.

If the dealer uses credit information obtained from a third party that is not a consumer reporting agency, the adverse action notice must so inform the consumer and advise they may make a written request within 60 days of the notice to obtain the nature of that information. An example would be information received directly from the consumer’s employer, landlord, or a private creditor.

Risk-Based Pricing Notices

The Risk-Based Pricing Rule (RBP Rule) took effect January 1, 2011 and was amended effective August 15, 2011. Its purpose is to inform consumers that they received worse credit terms than other consumers because of information in their credit reports. Receipt of a consumer’s credit application triggers the RBP Rule notice requirement. A creditor who uses a consumer report and provides credit to the consumer on “material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers from or through that person” either has to give these customers a “risk-based pricing notice” (RBP Notice) or give a “credit score disclosure exception notice” (CSD Notice) to all credit applicants. “Material terms” generally means the APR.

Compliance with the RBP Rule is difficult and expensive, a fact that was recognized by the agencies that wrote it and evidenced by the inclusion of the CSD Notice exception. The CSD Notice exception permits a dealer to provide all applicants for credit a disclosure of their credit score and certain other information, i.e., the date and identity of the person providing the credit score; the national distribution of credit scores among consumers under the credit scoring model used, disclosed in either a bar chart form or in language indicating where the customer falls in the national range of credit scores; and certain language disclosures about credit scores in general.

CSD Notices are easily obtained from consumer reporting agencies (e.g., Experian, TransUnion, Equifax, Credco, etc.), and should be provided to every credit applicant as soon as possible after obtaining the credit score but no later than the consummation of the transaction. If you use multiple credit scores, you must disclose the one on which you most relied. If you didn’t primarily rely on one, you can disclose any one of the multiple scores. If a consumer does not have a credit score, you must give that consumer a special form alternative notice stating that no score was available. Notably, the CSD Notice exception does not require disclosing the four to five “key factors” that adversely affected the credit score. The “key factors” disclosure is only required for adverse action notices.

What if your dealership doesn’t ordinarily need to pull credit reports or credit scores? Your lender may still expect you to handle this requirement as the initial creditor, and this may require you to buy a credit score anyway.

Security Freeze Laws

All consumers can now freeze their credit files by contacting most consumer reporting agencies, including the three nationwide credit bureaus: Equifax, Experian, and TransUnion. If a customer freezes her credit file, you will be unable to pull her credit report (including her credit score) unless she “thaws” the credit freeze with the credit bureau. If a customer calls the credit bureau to disable the freeze, the report should be available in a relatively short amount of time. If a customer submits a written request to disable the freeze, the process could take up to several days after receipt of the request.

Truth in Lending Act (TILA) Requirements

TILA, the federal Consumer Leasing Act (CLA, a subsection of TILA), and their implementing regulations, Regulations Z and M respectively, govern disclosures of credit terms to consumers. TILA and CLA disclosures must be given prior to consummation of the transaction. TILA and state laws also contain disclosure and other requirements for credit applications and consumer credit contracts. Many state laws cap Annual Percentage Rates (APRs) and other charges as do the federal Servicemembers Civil Relief Act and Military Lending Act discussed below. TILA and Regulation Z, and CLA and Regulation M, do not apply to credit transactions and consumer leases in excess of the then-current amount of the cap. However, it is a best practice to comply with TILA and the CLA regardless of the amount of the obligation on all credit transactions and consumer leases. A number of states require compliance with TILA on all credit transactions, regardless of the credit amount.

TILA generally treats costs of retail installment sales as either part of the amount financed (simplistically, the price of the goods or services financed by the consumer) or as a finance charge (simplistically, the cost to the consumer to finance payment of the goods or services):

Amount financed: Examples of required disclosures in retail installment sales contracts (RISCs) for the cost of the goods or services financed are the amount financed and an itemization of the amount financed. The amount financed includes the cash price of goods or services purchased on credit, and non-finance charge amounts advanced by the dealer to the consumer or paid to others on the consumer’s behalf, such as vehicle cost, taxes, registration fees, and sums paid to pay off credit obligations on a consumer’s trade-in vehicle. The cost of insurance (credit or property) financed in connection with the transaction can be a component of the amount financed (as opposed to finance charge) if properly disclosed.
Finance charge: This includes many types of charges that TILA defines as part of the finance charge and represents the cost of credit. The finance charge must be disclosed as the total dollar amount of finance charges and the cost of credit expressed as an APR in the RISC. These disclosures must be more conspicuous than any other required disclosures (such as by bolding them, outlining them in a border, using all capital letters, etc.). For examples of finance charges see Regulation Z, 12 C.F.R. 1026.4.
Lease Disclosures: The CLA and Regulation M require that the vehicle’s gross and adjusted capitalized cost, residual value, depreciation and amortization, and rent charges be disclosed in lease agreements.
Closed-Credit Disclosures: TILA and Regulation Z also require specific disclosures concerning credit terms of the transaction (e.g. the amount financed and finance charge) that must be provided before consummation of the transaction. For additional information on the disclosures and other requirements see TILA, 15 U.S.C. 41 et seq. and Regulation Z, 12 Part 1026.

State laws may require other disclosures and mandate that certain contract terms be conspicuous. Both RISCs and lease agreements must state the number, amounts, and timing of payments. TILA and Regulation Z also include specific rules on disclosing negative equity on a trade-in in a financing transaction. Negative equity should either be used to reduce the customer’s down payment or itemized under “Amounts Paid to Others.” It should not be disclosed as part of the sales price of the vehicle.

TILA requires creditors to disclose the costs of ancillary products and services that the consumer elects to purchase as part of the transaction, but that are not required in order to obtain credit. These items are typically disclosed in the Itemization of the Amount Financed on the RISC. Simply including the un-itemized cost of aftermarket items such as vehicle etching, service contracts, rustproofing, and other items into the cash price of the vehicle constitutes “payment packing,” an activity of great interest to the FTC and state Attorneys General. Even if an aftermarket product is permitted under applicable state and federal law, failing to disclose these items in the Itemization of the Amount Financed could subject the dealer to regulatory scrutiny and/or lawsuit. For example, a dealer was sued in a class action alleging a TILA violation for including vehicle etching in the cash price of new motor vehicles without disclosing that it was doing so – or that the vehicle etching was optional.

Creditors must disclose additional information regarding the cost of credit, including the Total of Payments (in both credit sales and loans) and Total Sale Price (in credit sales only). In addition, creditors must also disclose the security interest (typically in the vehicle), the amount of any late fees that could be imposed, and whether the consumer may prepay the obligation without incurring penalties. The disclosures also must include a contract reference directing the consumer to the contract documents for additional information about the extension of credit. These disclosures and others that could apply to the transaction, along with the finance charge, APR, amount financed, total of payments and total sale price, must be segregated from all other information and may not include any information not directly related to the disclosures.

Pick-Up Payments: TILA governs disclosure of deferred down payments (also called “pick-up payments”), a practice in which the consumer agrees to make a portion of the contractual down payment at a time later than contract signing and vehicle delivery. A deferred portion of a down payment may be treated as part of the down payment if it is payable not later than the due date of the second otherwise regularly scheduled payment and is not subject to any finance charge. However, most lenders require in their dealer agreements a representation and warranty from the dealer that it has received the down payment in full prior to assigning the RISC to the lender. Thus, while TILA permits deferred down payments, a lender on the receiving end of this representation and warranty could require a dealer to repurchase a RISC for breaching it.

TILA provides several ways to disclose pick-up payments. A creditor may disclose pick-up payments either as part of the down payment or as a component of the amount financed. Other disclosure requirements may apply.

State laws also have provisions relating to deferred down payments. Some states require a separate disclosure of the deferred portion of the down payment on the RISC. Non-disclosure of the deferred portion on the face of the RISC may violate some states’ laws.

TILA disclosures must reflect the legal obligation of the parties. If information necessary for the accurate disclosure is unknown, the disclosure may base the information on the best information reasonably known to the creditor and label the disclosures as estimates. In the case of a refinancing, new TILA disclosures must be provided for the refinanced transaction.

TILA also includes recordkeeping requirements. Creditors must retain evidence of compliance for two years after the disclosures are required to be made.

State Developments

In July 2020, New York passed SB 5470, a bill requiring commercial finance disclosures. The bill, which mirrors California’s SB 1235, requires application disclosures of information on commercial financing transactions of $500,000 or less. The bill, if signed into law by the governor, would require terms, such as the amount financed and APR, to be disclosed at the time the specific offer of financing is made and signed by the applicant, and would apply to many situations in which car dealers seek loans.

FTC Credit Practices Rule

The FTC Credit Practices Rule has three major provisions.

First, it prohibits certain unfair contract provisions, such as making consumers assign their wages to get credit or a creditor taking a lien on household goods to secure payment.

Second, the rule prohibits “pyramiding” of late fees, when a payment is considered late only because the payment did not include a late fee from the previous payment.

Third, the Credit Practices Rule also requires giving cosigners an FTC-mandated notice describing their potential liability if the consumer fails to pay. The notice must be given and signed by the cosigner before the cosigner becomes obligated on the agreement. A “cosigner” is different from a co-buyer, co-borrower, or co-applicant because a cosigner receives no tangible benefit from the agreement but undertakes liability as a favor to the main debtor who would not otherwise qualify for credit.

On the other hand, a co-buyer (one who shares in the purchased goods), a co-borrower (one who shares in the loan proceeds), or a co-applicant do receive benefits. Therefore, they generally are not considered cosigners under the Rule, and you are not required to provide the cosigner notice to them. A classic example of a cosigner is a parent cosigning for their child’s credit obligation. Many states have additional requirements for cosigner notices so check with your local attorney on the cosigner notice required in your state. Recall that when two applicants for credit apply for financing, they are required to indicate on the credit application whether or not they intend to apply for joint credit.

Electronic Signatures and Records

The federal Electronic Signatures in Global and National Commerce Act (the E-SIGN Act) and the state-adopted Uniform Electronic Transactions Act (UETA) were enacted to resolve uncertainty about whether electronic documents and signatures are as valid as paper ones. Both acts provide that electronic records and signatures have the same legal status as ink signatures and paper records. Under both, an “electronic record” is information “that is stored in an electronic or other medium and is retrievable in perceivable form” and an “electronic signature” is “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.”

Neither act changes the disclosure or content requirements for documents under other law. The E-SIGN Act requires that consumers specifically consent to receiving disclosures that are required to be “in writing” electronically and provides specific requirements for obtaining such consent. Alternatively, one can provide such disclosures in paper form and avoid the consent procedure imposed by the E-SIGN Act.

Please note that because of limitations in their scope, the E-SIGN Act and UETA do not alter the documentation and signature requirements of Uniform Commercial Code Article 9, which provides the requirements for the customer to grant the creditor a security interest in the vehicle sold. Fortunately, Article 9 permits the use of electronic records and signatures to grant a security interest in substantially the same way as the E-SIGN Act and UETA would. So, the electronic records and signatures used in the customer’s financing contract that satisfy the E-SIGN Act and UETA requirements will also satisfy the Article 9 requirements for the contract.

As a result, a consumer’s digital signature on an electronic signature pad linked to an electronic document or their digital signature on a tablet used to provide the documents has the same legal effect as their ink signature on a paper document. A click-through to a website can also be an electronic signature. The electronic document can be stored in an electronic filing cabinet or vault and should be retained for a period of time equal to the retention period for a paper version of the same document. Under TILA, the consumer must receive a copy of the disclosures that the consumer can keep prior to the consummation of the transaction. See more in Topic 11: Recordkeeping and Destruction of Records.

The UETA was not adopted in Illinois, New York and Washington. We recommend reviewing state law in these states for any additional requirements concerning the use of electronic signatures.

Servicemembers Civil Relief Act (SCRA)

Formerly called the Soldiers and Sailors Civil Relief Act, this law imposes a 6-percent rate cap on pre-existing secured credit, including vehicle credit sale or a loan, during the period of military service. These provisions apply to both the person in military service and their dependents with respect to obligations entered into by such persons before the service member was called to active duty status.

The SCRA also allows service members to terminate pre-service automobile leases if they are called for military service of 180 days or longer. Service members who sign automobile leases while on active duty may be able to terminate an automobile lease and receive a refund of any lease amounts paid in advance if they are given orders for a permanent change of station outside the continental United States or to deploy with a military unit for a period of 180 days or longer.

A large auto lessor agreed to pay millions to settle a SCRA claim with the Department of Justice (DOJ) related to DOJ charges that the lessor failed to properly refund lease amounts paid in advance consisting of a pro rata portion of the lessee’s capitalized cost reduction (minus manufacturer rebates or similar incentives, the payoff of negative equity or prior lease balances, payments for vehicle maintenance and other ancillary products, the amount of any acquisition fee, and any amounts paid for tax, title, and license).

In addition, the SCRA requires a creditor to file an affidavit with the court regarding whether or not a customer is in military service before obtaining a default judgment against a customer or whether the creditor is unable to determine whether the defendant is in the military. It also permits a court to stay (delay) the repossession of a vehicle in certain circumstances. It requires a court to review and approve any repossession or termination of a lease if the service member entered into the credit sale, loan, or lease and made a payment before entering military service. The court may delay the repossession or require the creditor to refund prior payments before repossessing. It can also appoint an attorney to represent the service member, require the creditor to post a bond with the court, and issue any other orders it deems necessary to protect the service member. The law also imposes special requirements on a creditor accepting a voluntary surrender of a vehicle.

A large subprime auto finance creditor agreed to pay millions to settle a SCRA claim with the DOJ related to charges that the creditor failed to obtain court orders before repossessing motor vehicles owned by protected service members, preventing them from obtaining a court’s review on whether their repossessions should be delayed or adjusted in light of their military service.

The Military Lending Act

The Military Lending Act (MLA) is a federal law that imposes limitations on the cost and terms of certain extensions of credit to service members and their dependents (“covered borrowers”). The MLA applies to “consumer credit” extended by a creditor to a “covered borrower.”

For purposes of the MLA, “consumer credit” means “credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is: (i) subject to a finance charge; or (ii) payable by a written agreement in more than four installments.” There are only four narrow exceptions to this definition of consumer credit, along with a temporary exemption for credit cards: (i) residential mortgages; (ii) any credit transaction that is expressly intended to finance the purchase of a motor vehicle when the credit is secured by the vehicle being purchased; (iii) any credit transaction that is expressly intended to finance the purchase of personal property when the credit is secured by the property being purchased; and (iv) any credit transaction that is an exempt transaction for the purposes of Regulation Z. These narrow exceptions were not clearly defined in the MLA and are subject to interpretation.

In December 2017, the Department of Defense released guidance clarifying that whether a transaction qualifies for the purchase-money exceptions described above depends upon “what the credit beyond the purchase price of the motor vehicle or personal property is used to finance.” More specifically, “financing costs related to the object securing the credit will not disqualify the transaction from the exceptions, but financing credit-related costs will disqualify the transaction from the exceptions.” The Department of Defense failed to define the term “credit-related cost,” but provided two examples: Guaranteed Auto Protection insurance and credit insurance. Various trade associations immediately petitioned the Department of Defense to withdraw its guidance, particularly due to its retroactive effect, and these items have since been excluded from the Department of Defense’s interpretation. This was a victory for service members who now have financial products to protect them from total vehicle loss. Efforts to obtain further clarification are ongoing.

Under the MLA, a “covered borrower” is a consumer, who, at the time the consumer becomes obligated on a consumer credit transaction or establishes an account for consumer credit, is a covered member or a dependent of a covered member. A “covered member” includes members of the armed forces on active duty or on active Guard and Reserve Duty, and their dependents. Dependents can include the spouse, in some cases a child, parent or parent-in-law, or an unmarried person in the legal custody of the military member. The MLA provides various protections for “covered borrowers.” Those protections fall into two main categories: (1) a 36% Military Annual Percentage Rate (MAPR) cap, and (2) “other MLA terms and conditions,” including oral and written disclosure requirements and certain specified prohibitions and limitations, such as a prohibition against using the title of a vehicle as security for the consumer credit obligation. The MAPR is an all-inclusive APR that eliminates some prior “finance charge” exceptions under Regulation Z. For example, the MAPR calculation must include (a) fees/premiums charged for voluntary credit insurance, debt cancellation contracts, and debt suspension agreements, and (b) fees for any ancillary products sold in connection with the consumer credit.

In order to ensure that the terms of any consumer credit transactions entered into with covered borrowers meet the requirements of the MLA, the creditor must determine the covered borrower status of every applicant for consumer credit. Though the creditor is not required to use a specific method to determine covered borrower status, the MLA Regulations do allow a safe harbor for covered borrower status determinations. In order to obtain the safe harbor, creditors must either (1) directly or indirectly (perhaps through a service provider) verify the consumer’s covered borrower status through the MLA database, or (2) verify the consumer’s covered borrower status by using a consumer report obtained from a nationwide consumer reporting agency that has a statement, code, or indicator (if any) concerning the consumer’s covered borrower status. Doing so, and keeping a record of the findings, provides a safe harbor from liability under the MLA’s terms in such status determinations.

Violators of the MLA Regulations are subject to draconian penalties, including $500 per violation in actual damages, in addition to punitive damages, equitable or declaratory relief, court costs, and attorney’s fees. Knowing violations are treated as misdemeanors, which can lead to fines or imprisonment. Also, violating contracts are void from the inception of the contract (that is, the creditor cannot collect any principal or interest).

You should seek advice of counsel to determine whether the MLA applies to your transactions.

CFPB Small Dollar Rule Effect on Auto Lending

On October 5, 2017, the Consumer Financial Protection Bureau (CFPB) issued its final rule on Payday, Vehicle Title and Certain High-Cost Installment Loans (the “Small Dollar Rule” or “Rule”). Although the Small Dollar Rule is targeted at short-term, high-interest rate loans (e.g., payday loans), the Rule has potential consequences for the auto financing industry. In February 2019, the CFPB issued a notice of proposed rulemaking with regards to mandatory underwriting provisions. On June 6, 2019, they issued a final rule to delay compliance date for the mandatory underwriting provisions to November 19, 2020.

Recently, in July 2020, the CFPB issued the 2020 Final Rule. As currently written, the Rule applies to three types of consumer loans: (i) loans with a term of 45 days or less called “short-term loans,” (ii) balloon‐payment loans, and (iii) loans charging an annual percentage rate over 36% that include a “leveraged payment mechanism,” such as a debit authorization. Covered short-term loans and balloon payment loans are subject to extensive and burdensome underwriting rules and a new type of credit reporting requirement. Covered leveraged payment loans are not subject to the underwriting and credit reporting requirements, but they are subject – along with covered short-term loans and balloon loans – to new disclosures that must be given before processing certain payments and limits on the number of payment attempts.

Note that, although the Rule is written in terms of “loans,” the term loan is defined to include any extension of credit and would, therefore, include retail installment sales.

The CFPB provided an exemption from the Small Dollar Rule for “certain purchase money security loans.” Specifically, the Rule does not apply to credit extended for the “sole and express purpose of financing a consumer’s initial purchase of a good, when the credit is secured by the property being purchased, whether or not the security interest is perfected or recorded.” In other words, if a consumer receives credit for the express purpose of purchasing a car, the car secures the transaction, and the amount financed is approximately equal to, or less than the cost of acquiring the car, then the transaction is excluded from the Rule.

However, there are two important limitations on this exemption: financing ancillary products, and refinancing a purchase money transaction. Concerning ancillary products, the CFPB noted that the purchase money exemption does not encompass “ancillary products that are being sold along with a vehicle,” but “are not themselves the good in which the lender takes a security interest as a condition of the credit.” Therefore, financing an ancillary product along with a car could mean that there’s no purchase money exemption for the transaction, if the transaction otherwise meets the definition of a “covered loan.”

Additionally, the CFPB expressly states in the commentary accompanying the Rule that the purchase money exemption does not extend to refinances of purchase money credit.

Therefore, if an auto finance transaction involves ancillary products or refinancing, then it could be covered by the Rule if the (i) term is 45 days or less, (ii) transaction has a balloon payment, or (iii) APR is over 36% and the transaction includes a leveraged payment mechanism.

Note that, besides the purchase money exemption, the Rule also contains an “accommodation” exemption for loans made by a lender who makes 2,500 or fewer covered short‐term or balloon payment loans per year and derives no more than 10% of its receipts from such loans. As a result, some sellers of motor vehicles may be permitted to engage in a “de minimis” volume of covered loans, without application of the Rule’s requirements to such loans.

You should seek advice of counsel to determine whether the Rule applies to your transactions.

OFAC

The USA Patriot Act, administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), mandates that no U.S. person (including auto dealers) can do any business — cash or credit — with persons or entities included on OFAC’s list of Specially Designated Nationals and Blocked Persons (SDN List). These are lists of persons or entities suspected of being associated with or funding terrorist organizations and other criminal enterprises. The list is frequently updated although a searchable version of the list is published on OFAC’s website, http://www.treasury.gov/ofac/downloads/sdnlist.txt.

For compliance with the USA Patriot Act, you must run all of your customers – both cash and credit – against the SDN List (including the names of any individuals who directly or indirectly own 50% or more of any entity that is a party to a new transaction). You should also run service and parts customers who make unusual orders (e.g., high quantities of materials that could be used in making an explosive device) or who otherwise seem suspicious. You may conduct the search online yourself, or you can purchase a product from a credit bureau or an identity verification service to systematically check a customer against the current SDN List.

If you get a preliminary match, OFAC lists a series of steps to determine if you have a true match or a false positive. If you believe you have a true match after following those steps, you must call OFAC at their designated number, and you cannot do business with that person unless instructed otherwise. You must report each blocked transaction to OFAC (there is an optional form for reporting blocked transactions: http://www.treasury.gov/resource-center/sanctions/Pages/forms-index.aspx), and submit an annual report of all blocked transactions (using Form TD F 90-22.50 which can be found at: http://www.treasury.gov/resource-center/sanctions/Pages/forms-index.aspx).

Car Buyer’s Bill of Rights

In 2006, California passed significant legislation, known as the “Car Buyer’s Bill of Rights,” affecting the way dealers sell and finance the purchase of motor vehicles. Since then, several states have passed their own versions of the Car Buyer’s Bill of Rights. These laws generally give consumers additional rights and may, among other things, require dealers in affected states to make additional written disclosures to consumers with respect to certain charges and aftermarket products, as well as providing standards for selling “certified” used vehicles.

You should consult with your attorney to ensure that your procedures are designed to comply with the requirements of the law of the jurisdiction applicable to the transaction.

Spot Deliveries

Spot delivery refers to the practice of a dealer placing a consumer in a vehicle “on the spot” to make a sale – prior to obtaining a finance source’s approval to purchase the financing contract. The sale is made contingent upon the dealer obtaining financing for the purchase, typically by a finance source agreeing to buy a RISC signed by the customer and the dealer. Spot deliveries are regulated in many states, and in a few states are either prohibited or significantly restricted. State regulation of spot delivery varies greatly. Many states have specific requirements for terms on which spot deliveries may be conducted, disclosures that must be provided to consumers, and the form of the spot delivery agreement. For example, a few states require that the conditions for delivery be included in the RISC, while others require the spot delivery terms to be in a stand-alone document.

Also, consider whether the applicable law addresses certain spot delivery practices, such as:

Limiting fees for miles driven by the customer
Prohibiting the sale of the customer’s trade-in vehicle until the deal is finalized
Limiting the number of days to obtain financing approval

Your dealership should also have procedures designed to ensure that spot deliveries are conducted in accordance with applicable law.

Failure to use appropriate documentation and procedures for spot deliveries invites lawsuits from consumers and the attention of regulators. In many states, botched spot deliveries may result in claims under state laws prohibiting unfair and deceptive acts. You should consult an attorney and know your state’s laws on spot deliveries before engaging in the practice.

Spot Agreements

Except in states where the spot delivery terms and conditions are required to be in a stand-alone document, it is good practice to incorporate the spot delivery terms and conditions in the RISC. This minimizes the risk that a consumer will be able to require your dealership to honor the terms of the RISC even if no financing source has agreed to purchase the RISC. Even in states where spot deliveries are unregulated, the spot delivery terms and conditions should always be agreed upon in writing. Without a signed spot agreement, the dealer will have signed an unconditional RISC with a buyer for the purchase and financing of a vehicle. If the dealer can’t sell the RISC, the dealer is obligated to honor the deal unless it has a spot agreement demonstrating that the parties agreed that the deal could be unwound.

Generally, spot agreements permit either the dealer or the consumer to unwind the deal if the dealer cannot find a financing source willing to purchase the contract on the terms set forth in the RISC.

In the event that a sale is unwound and the dealer and the consumer elect to “re-contract” by entering into a new sale on different terms, it is generally a good practice to have the consumer sign a document that memorializes the fact that the parties have agreed to cancel the prior contract and enter into a new transaction. This helps a dealer to demonstrate that the consumer made a voluntary decision to sign the new contract. It is also a good practice to conduct another menu transaction when re-contracting a unwound spot deal and to keep all the documentation from both transactions together in one master deal jacket in case an issue comes up later.

Dealers should never backdate a new contract to the original date of vehicle delivery. This practice is likely to violate TILA disclosure requirements which mandate that finance charges can only accrue from the date of consummation. If the contract is backdated, a plaintiff’s attorney could argue that the date of consummation was the date the customer signed, meaning that the customer will have paid interest for the days between the date on the contract and the date it was consummated and, as a result, that the APR and finance charge disclosures are incorrect. Class actions have been brought against dealers who backdate new contracts on unwound spot deals.

A pattern of numerous unwinds of spot deals may give plaintiffs’ lawyers or regulators grounds to claim the dealer is engaging in “yo-yo financing,” which can be a deceptive trade practice under Section 5 of the FTC Act or state law. It is a good practice to monitor what percentages of your spot deals are unwound. If you see the percentage rising, investigate and train your sales and F&I officers on what types of deals you believe your lenders will buy. A dealer should be prepared to show that the dealership made a good faith effort to get the original deal financed with multiple finance sources.

Many of the principles applicable to spot deliveries in a sale transaction would apply to a lease transaction, though some terms and conditions of the spot delivery might change based on state law. Any forms used to document the terms of the lease spot delivery would need to reflect those changes.

The Federal Odometer Law

This law requires sellers of motor vehicles to disclose to buyers in writing the odometer reading of the vehicle being sold and prohibits tampering with odometer devices. The buyer must review and sign the disclosure. For used car sales, the odometer reading at the time of transfer must be disclosed on the title. Specific additional disclosures are required by this law and other applicable regulations, plus there are recordkeeping requirements. State laws also govern registration and titling requirements, with additional requirements at the federal level.

For example, for decades the National Highway Transportation Safety Administration (NHTSA) required a “wet signature” on an odometer disclosure for sales of vehicles 10 model-years old or less. However, in September 2019, NHTSA finally allowed states to develop their own odometer disclosure forms that may use an e-signature. It is important to note that in some states, such as California, laws still prevent fully electronic vehicle sales.

Automated License Plate Readers

There are a number of state laws governing the use of automated/automatic license plate readers (ALPRs). ALPRs capture computer-readable images that allow law enforcement to compare plate numbers against plates of stolen cars or cars driven by individuals wanted on criminal charges. The devices are often mounted on police cars, road signs or traffic lights and capture thousands of images of plates. While most of these laws regulate government use only, there are a few that regulate private sector use as well. Therefore, it will be important for companies to review these state regulatory requirements prior to deploying ALPR technology.

Internet Sales

State laws have not really caught up with the evolving online vehicle sales and financing platforms, but dealers are able to increase sales by selling to out-of-state buyers using a variety of web-based tools. When an out-of-state dispute arises, the buyer will often attempt to sue the dealer in the buyer’s home state and claim that the dealer should have been licensed in their home state and/or that the law of their home state (including those laws addressing contract disclosures, and related consumer credit requirements and limitations) applies to the transaction. This could potentially trigger scrutiny by state regulators too. Also check your dealer agreements with your lenders. Many dealer agreements contain representations by you that the deal has been conducted entirely within your dealership, and thus may subject your deal to repurchase.

Note that one area where guidance from the states does exist in connection with Internet sales is advertising. Many states do have specific rules in connection with online advertising. So, it is important to consult a knowledgeable attorney on how to minimize your risks when selling to out-of-state customers through an Internet sale process. State Law Restrictions on Fees State laws also limit or restrict fees that may be charged by a dealer, especially when the vehicle purchase will be financed in a credit sale. Some fees are only applicable to credit sales (e.g., application fees, credit investigation fees, lien recording fees, etc.). State retail installment sales acts and consumer credit codes often limit or prohibit the kinds of fees that may be charged in a credit sale. Some of these fees may also be treated as a finance charge under federal law, state law, or both.

Some fees are charged in both cash and credit sales. Document preparation (“doc fees”) is a good example of a fee that dealers typically charge in both cash and credit sales. As a general rule, a dealer should not charge doc fees in a credit sale unless the dealer also charges the same doc fee in a cash sale. This is because charging a doc fee only for credit sales means that the doc fee will be treated as a finance charge under federal law, and that complicates things for the dealer and any assignee of the finance contract. In many states, a doc fee that is a finance charge would be subject to rebate upon prepayment of the finance contract. In addition, the systems responsible for creating the federal Truth in Lending disclosures on a RISC will not be able to calculate the impact of the doc fee on the finance charge and APR disclosures. So, a dealer that charges a doc fee only on credit sales is likely to understate the finance charge and APR in violation of federal law, and possibly state law as well.

Even where doc fees are charged on both cash and credit sales, state law may limit the doc fee to a specific dollar amount or to a reasonable amount in relation to the actual costs of preparing and filing documentation. A great deal of litigation has occurred relating to the propriety of doc fees charged by dealers in states where no specific amount is provided by law. Know your state law on permissible doc fees and consult your local attorney if no specific amount is permitted, or the doc fees are limited to being “reasonable.”

You should consult with your attorney to ensure that all fees comply with applicable state law.

State Single Document Laws

A single document rule requires that all documents, or certain documents, evidencing the sale and financing transaction between the dealer and the buyer be contained in one document. The state single document rules take varying forms. Usually, however, a state’s rule will permit multiple pages. You should make certain that you know whether your state has a single document rule and how it applies to your documentation of a deal.

Cash Sales

If a customer purchases a vehicle with cash or cash equivalents in excess of $10,000, you must file IRS/FinCEN Form 8300 within 15 days after receiving the cash payment. This form can now be filed electronically. For this purpose, “cash” is not only currency but currency equivalents such as traveler’s checks, cashier’s checks, bank drafts, and money orders, if they have face amounts of $10,000 or less (note that monetary instruments with a face value of more than $10,000 are not considered cash because the financial institution issuing the instrument is required to report the transaction). A personal check and a bank check representing the proceeds of an auto loan made to the customer by the bank are not considered cash or cash equivalents because they are part of an ongoing relationship between the customer and the bank. If the customer conducts a “related transaction” (another transaction within 24 hours such as buying another vehicle for cash, or transactions more than 24 hours apart if you know, or have reason to know, that each is one of a series of connected transactions), then you must total all the cash and cash equivalent payments from both transactions for purposes of calculating whether you collectively meet the greater than $10,000 threshold for filing IRS/FinCEN Form 8300. By January 31 of the following calendar year, you must send a notice to the customer informing him or her that you filed an IRS/FinCEN Form 8300 during the prior calendar year.

The penalties for failure to comply with IRS cash reporting laws can be devastating if the IRS deems it to be intentional or in reckless disregard of the dealer’s obligations. Intentional disregard is the knowing or willful failure to file. For forms required to be filed on and after January 1, 2019, merely failing to file on time subjects a dealer to a penalty of $270 per instance (i.e., a negligent violation), up to an annual aggregate limit of $1,091,500 for businesses with gross receipts not exceeding $5 million and $3,275,500 for businesses with gross receipts exceeding $5 million. Intentional disregard raises the maximum penalty to $27,290 per instance or the cash received by the dealer in the transaction, up to a maximum of $109,000. Note that the IRS adjusts the penalty amounts for inflation annually. A dealer should adopt a written policy to educate employees on cash reporting (including the definition of cash and cash equivalents), the dealer’s obligations, and how to avoid illegally structuring transactions with the person providing the cash. A dealer can also file a Form 8300 to report a suspicious transaction, even if the transaction does not meet the $10,000 threshold, if it suspects a customer is structuring cash payments in a manner intended to avoid reporting requirements. The criminal penalties for money laundering, the signs of money laundering, and the dealer’s written policy on reporting such suspicious transactions should also be a part of your compliance plans. Consider training, monitoring, and using the DMS system in the background to flag transactions based on types of funds received.

Disclosure of Starter-Interrupt and/or GPS Technology

A dealer who fails to fully disclose and obtain the consumer’s consent to install and use the starter interrupt and GPS technology for payment assurance purposes may risk violation of federal and state law. At the very least, the disclosure must clearly and concisely explain that the technology is installed on the vehicle as a condition of the extension of credit, describe how the technology will be used, and obtain the consent of the buyer to the use of the technology.

While using starter interrupt or GPS technology is legal in most jurisdictions, most retail installment contracts do not allow a creditor to impose a charge for the installation and use of the technology when such installation and use is a condition of the credit extension. In addition, regulators frown on such charge and therefore, dealers that assess charges for installation and use of the technology in these instances face potential litigation risk and regulatory scrutiny.

Consult your attorney for guidance relating to disclosure requirements, best practices and/or legal limitations on usage.

Failing to Obtain the Customer’s Signature

If you fail to obtain a customer’s signature on a RISC, Buyer’s Order, or other document, the dealer should not sign the customer’s name.

Recommended Practices

Always have a “permissible purpose” to pull a consumer’s credit report. A signed authorization from the consumer (generally on a credit application) is strongly preferred but not required (except in certain states) when both the dealer and customer understand they are close to completing a credit transaction. Most credit applications, which are usually signed by the consumer, contain language where the consumer agrees that you can access their credit report. Check your agreements to confirm whether this language is included. Finance sources usually obligate dealers to provide to credit applicants a list of the names and addresses of the finance sources to which the dealer may send their credit application to avoid being deemed a consumer reporting agency under FCRA.
Give or send a risk-based pricing notice or credit score disclosure exception notice to every applicant for credit. You can obtain the consumer’s credit score and the distribution of credit scores for the scoring model used from a credit bureau, or a third-party source such as Dealertrack. The only exception is for customers who do not have a credit score, and they should receive a separate notice for consumers without a credit score. Even if you don’t typically pull credit on applicants, you may have to buy a credit score to give the credit score disclosure notice to all credit applicants to meet your obligation to your lenders. Give the notice to the consumer as soon as possible after getting the credit score information necessary to complete the credit score disclosure notice form. Keep a copy in the deal jacket.
Send adverse action notices when required. Remember to send an adverse action notice when you decline credit or when unwinding a spot deal, for example. Note that adverse action notices require inclusion of a consumer’s credit score and credit score disclosures including up to four to five key factors that adversely affected the credit score – if the credit score was a factor in the adverse action.
Consider adopting, implementing, and monitoring compliance with an ECOA/Fair Lending policy. Staff training and monitoring buy rate markups can be a part of the policy. One good practice, originally developed by the Department of Justice (DOJ), is to implement a consistent buy rate markup amount for all customers and permit markdowns only, based on significant, non-discriminatory, pre-identified legitimate business reasons. The reasons should be documented in the deal jacket to demonstrate the legitimacy of the action should a finance source or regulator audit the dealer’s practices. This documentation should be a purely internal document and not something to give to the customer. This approach is the foundation of the NADA-NAMAD-AIADA Fair Credit Compliance Policy and Program Compliance Form (“NADA Form”) which closely tracks not only the approach of the DOJ but also provides a list of the specific reasons it approved in the case settlements it entered into in 2007. You can obtain a copy of the NADA Form from NADA.
Do not charge credit customers higher prices than cash customers on vehicles or aftermarket products. Be prepared to show there is no negative purchase price differential for credit as opposed to cash customers. Use a menu-selling process for aftermarket items to show you consistently offer products to all consumers at the same prices. Comply with Car Buyer’s Bill of Rights and/or other applicable state law requirements for disclosures of aftermarket products.
If spot deliveries are permitted in your state, always use a spot agreement containing terms permitted or required by your state. Include language that gives both you and the buyer the right to unwind or re-contract if you cannot obtain financing approval for the original contract on the terms set forth in the RISC. Your attorney should review and approve your spot agreement form for compliance with your state’s laws. Track your percentage of unwound spot deals. A significant percentage can lead to claims of deliberate “yo-yo” financing by the dealership which some courts have held to be an unfair trade practice.
Document the re-contracting of an unwound spot deal. When you re-contract a spot deal, do not backdate the new contract the customer is signing. Date the new contract on the day when both parties sign. And don’t forget to give the customer an adverse action notice for unwinding the original contract.
Be able to show customers how they can quickly thaw their frozen credit files. For customers who have placed security freezes on their credit files, have a sheet of paper available containing the phone numbers of all three national credit bureaus (Equifax, Experian, and TransUnion) for the customer to call to temporarily “thaw” their credit files so that you can pull a credit report on the customer. This will require the customer to have available the PIN issued to them by the credit bureau when they froze their credit file. It is not advisable to take the customer’s PIN or offer to make the calls for the customer. If you spot deliver or sell a vehicle to a customer with a frozen credit file, proceed with extreme caution. Consider obtaining additional information, such as a pay stub, bank statement, or other evidence of the customer’s creditworthiness, and be especially diligent when verifying the customer’s identity. Few lenders will purchase a contract for a customer on whom they cannot pull credit.
Provide full disclosure and obtain the customer’s consent to install and use starter interrupt or GPS technology for payment assurance purposes. Be transparent about the GPS technology and the disclosure must at minimum explain that the technology is installed on the vehicle as a condition of the extension of credit, describe how the technology will be used, and obtain the consent of the buyer to the use of the technology.

Additional Resources

Fair Credit Reporting Act and Regulation V:
http://www.consumer.ftc.gov/articles/pdf-0111-fair-credit-reporting-act.pdf
https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1022/1/

Equal Credit Opportunity Act and Regulation B:
https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title15-chapter41-subchapter4&edition=prelim
https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1002/

Consumer Leasing Act and Regulation M:
https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title15-chapter41-subchapter1-partE&edition=prelim
https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1013/1/

Truth in Lending Act and Regulation Z:
https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title15-chapter41-subchapter1&edition=prelim
https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1026/1/

Car Buyer’s Bill of Rights

California:
http://www.consumer.ca.gov/publications/car_buyer_rights.shtml

Minnesota:
http://www.mada.org/Portals/70/Documents/Legal/Consumer/BillRightsBulletin.pdf

New York State Department of Financial Services Fair Lending Guidance:
https://www.dfs.ny.gov/about/press/pr1808231.htm

Servicemembers Civil Relief Act:

https://www.justice.gov/servicemembers/servicemembers-civil-relief-act-scra

The Risk-Based Pricing Rule:

https://www.ecfr.gov/cgi-bin/text-idx?SID=bf7f3ee14648fb263a78182a8c1c6420&node=16%3A1.0.1.6.74&rgn=div5

Information about Filing IRS Form 8300 on cash deals with cash payments over $10,000:

http://www.irs.gov/pub/irs-pdf/p1544.pdf

Office of Foreign Assets Control

https://www.treasury.gov/resource-center/sanctions/Pages/default.aspx

Sample Adverse Action Notice Form

The following is a sample of one form of adverse action notice appropriate for use in certain circumstances. There are a number of other model forms that may be more appropriate for a given transaction. Consult your counsel for advice on which model form, if any, could serve as a template for your dealership.

Review Sample Adverse Action Notice Form Here

Recommended Practice

Get each consumer's written consent to obtain a consumer report.

Compliance Tip

Be aware of the fair lending rules for your state.

Compliance Tip

Know your timeframes for Adverse Action Notice obligations under the ECOA.

Be able to show customers how they can quickly thaw their frozen credit files.

Recommended Practice

Before installing and using starter interrupt or GPS technology for payment assurance, provide full disclosure and get the customer's consent.

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