Nicole Frush Munro | Hudson Cook, LLP
Published in A*QUA Issue 004, Q3, 2010
You have made it through the economic crisis – well almost. Your dealership is still standing, and you’ve seen some light at the end of the tunnel. As the economy improves. at least in some areas, the traffic through your dealership has picked up. You’re a little less fearful than you were a year ago, even though 2010 has been a rough year. But wait, when you’re talking legal, there are a couple of things coming round the bend that may make 2010 look like a kiddie ride.
In house financing dealers across the country recently received letters from the Federal Trade Commission seeking copies of all contracts executed by the dealership since October 2009. The FTC sent the letters to gather information about dealership compliance practices with respect to the FTC’s Rule on the Preservation of Claims and Defenses or the “Holder Rule.”
The FTC appears to be engaged in basic fact-finding in the form of a nationwide survey of randomly selected dealers, looking to see if contracts routinely provide the disclosure required by the Holder Rule. And, while this FTC effort does not appear to be motivated by consumer complaints or other evidence of non-compliance on this issue, dealers are finding themselves faced with a request to provide the FTC thousands of contracts. This fact-finding mission is likely part of a larger scale review of dealer practice under the FTC’s newly created auto dealer task force designed to review auto dealer practices in general and determine the most appropriate form of regulation.
One of my partners is assisting BHPH dealers with responses to the FTC, so if you find yourself the recipient of a letter, give me a shout.
Effective January 1, 2011, a new model privacy form provides safe harbor for dealers. A dealer is not required to use the model privacy notice form. Use of last year’s privacy notice, if it accurately describes how you share information, remains effective. However, because of the safe harbor protection, dealers should strongly consider adopting a new privacy notice as soon after January 1 as possible. The model notice must be completed exactly according to the instructions.
Also effective January 1, 2011, dealers will be required to comply with the FTC’s Risk-Based Pricing Rule, giving yet another disclosure to customers at the time a deal is closed. Recall that the Risk-Based Pricing Rule requires that a consumer be given a risk-based pricing notice when credit is extended on “material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers.” It’s a complicated analysis, and many dealers will qualify for an exception to the notice requirement by providing a credit score disclosure to all applicants rather than a customer-specific risk-based pricing notice. Consumer reporting agencies are geared up to provide credit score disclosures in compliance with the Risk-Based Pricing Rule, so if you haven’t already, now is the time to contact your consumer reporting agency and find out the cost and process for getting the notice to give to your customers.
On July 21, 2010, President Obama signed into law the Wall Street Reform and Consumer Protection Act of 2010, the most far-reaching financial reform legislation since the Depression. Title X of the Act establishes the new Bureau of Consumer Financial Protection, a division of the Federal Reserve Board that effectively will be an independent agency overseeing all aspects of consumer protection with respect to financial products and services.
Skip from July 2010 to July 2011. On July 21, 2011, the Bureau of Consumer Financial Protection will become the newest super regulator. Although dealers may not be the initial target of the BCFP, dealers will see additional regulation and compliance burdens coming out of the agency sooner rather than later. The BCFP may take any action authorized under the Act to prevent someone regulated by the BCFP from committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with an extension of credit. We just don’t know how the BCFP will apply this new “abusive” standard, and we, like you, are anxiously awaiting guidance from the BCFP down the road.
Next year will be filled with legal uncertainty, new disclosure requirements, and substantive limitations on your dealership. Hang on to your hats folks, buckle your seat belts, keep your arms and legs inside the car, because 2011 will be a bumpy ride.