The National Automobile Dealers Association’s (NADA) program for dealerships to establish a fixed rate for dealer reserve was strongly endorsed by legal experts at the Automotive Resource Network conference here this week, according to a report by Automotive News.
“It would not surprise me if the finance source starts requiring you [dealers] to include this,” said Jean Noonan, a partner in Hudson Cook law firm’s Washington, D.C., office. The firm, based in Hanover, Md., specializes in consumer finance law.
The “NADA Fair Credit Compliance Policy & Program,” introduced by NADA in January, is aimed at helping dealerships avoid trouble with lenders and the Consumer Financial Protection Bureau over allegations of discriminatory lending.
Under the program, each dealership establishes a fixed percentage rate for dealer reserve, an amount of interest — usually up to 2 percentage points — that lenders allow dealerships to add to the buy rate on an auto loan as compensation for arranging the loan. The fixed rate is never to be exceeded but can be discounted, say, to match a specific competing finance offer. Every discount the dealership gives must be documented in writing based on a set of preapproved reasons.
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