Staying on top of legal requirements is an almost impossible task. I’ve worked in and around the powersports industry for half my life, in every position within the sales and finance departments, so I know how difficult this is.
It’s a difficult job for anyone. I spoke recently with a person in upper management of one of the organizations in our industry that monitors state and federal laws and keeps dealerships informed. He said that his company has 30 full-time lawyers who monitor every pending state and federal regulation in order to make sure that they have a good understanding of the current laws and upcoming changes. It’s no wonder a single finance manager can’t keep up with every law and know when it changes.
This is one of the reasons that I go through the most common federal requirements each time I’m in a dealership or workshop event.
Recently, I have found the Adverse Action Notice requirements to be the most misunderstood. Most finance, sales and general managers believe that as long as they send each customer to at least one finance source, the bank will send out the notice and then they will be covered. This was true until the Equal Opportunity Act was changed in 2011.
Here is the regulation, as it is commonly understood now:
Who is required to give an Adverse Action Notice?
(Excerpt from) Part 202 – Equal Credit Opportunity Act
(l) Creditor means a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit. The term creditor includes a creditor’s assignee, transferee or subrogee who so participates. For purposes of §202.4(a) and (b), the term creditor also includes a person who, in the ordinary course of business, regularly refers applicants or prospective applicants to creditors, or selects or offers to select creditors to whom requests for credit may be made.
In other words, your dealership and anyone there who acts on behalf of a person who makes a decision regarding credit, or who collects information and sends that information to a lending institution, is considered a creditor under the Equal Credit Opportunity Act.
(Excerpt from) Section 701 (d)
– Equal Credit Opportunity Act
A creditor must provide to applicants against whom adverse action is taken either: (1) A statement of reasons for taking the adverse action as a matter of course; or (2) a notification of adverse action which discloses the applicant’s right to a statement of reasons within thirty days after receipt by the creditor of a request made by the applicant within sixty days after the written notification.
This means that YOU, as a creditor, are responsible for mailing out an Adverse Action Notice – NOT the banks or lending agencies.
When is the notice needed?
It is required to be sent any time that approval is not granted or when approved terms do not match requested terms.
When must the notice be sent out?
If the customer is turned down with no counteroffers, the dealership has 30 days from the date of application to send out the notice. If there is a counteroffer
made by the bank, such as asking for a cosigner or for more money down, the dealership has 90 days from the date of the counteroffer to send out the notice.
What information must be included in the notice?
1. A statement that the adverse action has happened
2. Creditor name and address
3. An ECOA anti-discrimination notice
4. A statement of why the specific action was taken
How can the notice be delivered?
It can be handed to them in person, mailed, or sent electronically if you follow the E-sign regulation and obtain customer permission.
How long must documentation be kept, and what must be kept?
The dealership must keep a copy of the following documentation for 25 months:
1. Credit application
2. A written record of any information used in the credit decision: denial from the bank, credit file, proof of income, or any other information gathered
3. A copy of the notice with a record of how it was delivered
To view the complete Equal Credit Opportunity Act, visit http://tinyurl.com/lyarp9d
Steve Dodds II is a moderator, trainer, and consultant for Gart Sutton and Associates with a focus on sales and finance departments. If you have questions about what he or one of our other talented consultants can do to help you meet and exceed your goals, contact us at [email protected]
Legal Disclaimer: Please contact your dealership attorney if you have questions about the interpretation of any legal requirements.