Dealer Reserve and Data Protection

March 2014

By: Michael J. Dommermuth

Dealer Reserve is under attack at the federal level.  The Consumer Financial Protection Bureau (CFPB) has undertaken investigations and entered into a settlement with Ally Bank over the issue of whether financing practices at auto dealerships are discriminatory.  The CFPB claims that minority consumers pay more for their credit.  The CFPB utilizes a disparate impact methodology which has never been fully explained or fully approved by the United States Supreme Court in this context.  Nevertheless, the CFPB has put substantial pressure on large financial institutions to police discrimination.  These financial institutions are in turn putting pressure on dealers.

In January, the National Automobile Dealer Association (NADA) published a Fair Credit Compliance Policy & Program.  This Policy & Program contemplates that dealers implement a fair credit compliance program that establishes a set amount of dealer reserve that can be earned on any transaction.  Dealers are permitted to reduce that pre-determined rate under certain circumstances, but must complete documentation that substantiates the reason for the deviation.  The NADA Policy is a proactive approach to a difficult problem and should be considered by dealers who are concerned about claims of credit discrimination.

Dealers are also under increasing pressure for access to their customer data.  Vendors routinely ask dealers for access to their DMS systems, which include information that dealers have a statutory obligation to maintain as private.  Again, NADA has recognized that this is a common problem for dealers, and developed a Service Provider Dealer Data Access Addendum it recommends that dealers require of any vendors that want access to its data.  A link to the NADA memorandum and addendum is included below.  We would encourage dealers to consider adoption of this program to control vendor access to their private information, and to help insulate dealers from breach of privacy claims that might arise.

This Article is published for general information, not to provide specific legal advice. The application of any matter discussed in this article to anyone's particular situation requires knowledge and analysis of the specific facts involved.

Copyright © 2014 Fairfield and Woods, P.C.,ALL RIGHTS RESERVED.

Comments or inquiries may be directed to: Michael J. Dommermuth