Pub. 2 Issue 2

19 SUMMER 2014 any federal agency. Its adoption by a dealer is completely optional. Nevertheless, NADA believes the program provides a dealer who adopts it with a viable means of managing the dealer’s fair credit risk – and, in turn, the fair credit risk presented to its customers – while allowing dealer pricing discretion to be exercised in a standardized manner that lowers the cost of credit for consumers. This approach should appeal not just to dealers, but also to indirect finance sources and the CFPB as they consider ways to address fair credit risks at the retail level. With regard to f lat fee compensation programs, dealers can enter into them and NADA expresses no opinion as to the relative merit of any particular f lat fee or other compensation program. The decision to enter into any compensation program, whether involving dealer participation, a f lat fee, or another compensation arrangement, is an individual one that the dealer should make in consultation with its legal counsel. However, NADA cautions dealers to be wary of any claims that flat fee compensation programs somehow eliminate the dealer’s risk of violating fair credit laws. For the reasons stated above, these programs do not eliminate that risk for dealers who sell their contracts to multiple finance source partners. And, because they do not eliminate that risk, dealers who enter into f lat fee compensation arrangements must decide how they will manage that risk, much as the NADA Fair Credit Compliance Policy & Program sets forth an optional mechanism for managing the fair credit risk associated with the compensation programs involving dealer participation. This article was prepared by Paul D. Metrey, Chief Regulatory Counsel, Financial Services, Privacy, and Tax for the National Automobile Dealers Association. 1 CFPB Bulletin 2013-02 (Mar. 21, 2013). 2 A “flat fee pricing mechanism” generally refers to a finance source policy that compensates dealers for originating consumer credit contracts with a flat dollar amount per transaction, a percentage of the amount financed, or another fixed formula for determining the dealer’s compensation. These policies do not permit dealers to exercise any form of pricing discretion, such as offering consumers a discounted annual percentage rate (APR) in order to earn their business. 3 As with finance sources, dealers are exposed to significant liability for ECOA violations. 4 A broad industry adoption of flat fees in response to pressure from the CFPB would also create the risk of steering consumers to high-cost credit contracts, as dealers would be incentivized to sell their credit contracts to the finance source that offers the highest flat fee (which likely would result in higher APRs being paid by consumers). JUST PUT IT ON THE COMPANY CARD… NOBODY WILL NOTICE. YOU’RE REALLY SHOWING OFF YOUR BEST ASSETS TODAY. I NEVER WEAR THE SAFETY GOGGLES. THEY LEAVE A MARK. THEY’RE WORRIED ABOUT OVERTIME. I’M JUST WORKING OFF THE CLOCK. 444 South Flower Street • Suite 1590 • Los Angeles, CA 90071 • 213.330.4500 • www.laborlawyers.com ATLANTA BALTIMORE BOSTON CHARLOTTE CHICAGO CLEVELAND NEW ORLEANS ORLANDO PHILADELPHIA PHOENIX PORTLAND LOS ANGELES LOUISVILLE MEMPHIS NEW ENGLAND NEW JERSEY GULFPORT HOUSTON IRVINE KANSAS CITY LAS VEGAS COLUMBIA COLUMBUS DALLAS DENVER FORT LAUDERDALE SAN ANTONIO SAN DIEGO SAN FRANCISCO TAMPA WASHINGTON, D.C. The things employees say when you’re not around can cause legal troubles for you. Fisher & Phillips provides practical solutions to workplace legal problems. This includes helping you find and fix these kinds of employee issues before theymake theirway fromthewater cooler to the courthouse. What you don’t hear can still hurt you. 342-FISH Los Angeles Dealer 7.5x4.625.indd 1 4/10/14 3:56 PM 