Pub. 4 2014 Issue 1

13 Some dealers (and financial institutions that buy auto con- tracts) decide there is little they can do to protect themselves from fair lending allegations and simply forge ahead, conducting business as usual. This is a mistake. Let’s look at why the government often finds that minorities pay higher markups than white non-Hispanics. One possible explanation - and this is the possibility that concerns the govern- ment enforcement agencies - is that dealers purposefully charge minorities higher markups based on race or other prohibited factors. This is a very serious allegation. A quite different explanation is advanced by the dealers I talk with. They tell me that they try very hard to maximize earnings on every deal. Margins are thin, and they are stunned that a regulator would think they’d happily accept a lower markup to a white male based on race or sex. This explanation makes a lot of sense. So I listen closely to dealers’ answers when I ask why some buyers get financing with lower-than-usual markups. This is what I hear: • “The customer came in with a great rate from her credit union. I had to match it or lose the financing on the deal.” • “The customer said he could only afford a payment of $350 a month. I had to cut the participation in order to keep the payment within his budget.” In The Home Own every opportunity in your customers’ homes with custom products from Reynolds Document Services. www.reyrey.com/ClaimYourSpace. To learn how to claim your space, contact your Reynolds Document Consultant or visit ©2013TheReynoldsandReynoldsCompany.Allrightsreserved.Printed intheU.S.A.8/13 • “That customer bought a car that was eligible for a manu- facturer’s subvention program. I was limited to a dealer reserve of 1 percent.” • “That customer is the husband of our accounting manager. We waive markups as part of our employee- and-family program.” And so on. These are all legitimate, non-discriminatory rea- sons for a lower rate markup. Even the Department of Justice agrees with me about this. [ United States v. Union Auto Sales, Inc., 2012 U.S. App. LEXIS 14398 (9th Cir. (C.D. Cal.) July 13, 2012)]. The problem is that there is no record of when these legitimate situations exist. Without such information, there is no way to take these reasons into account. But that is changing. The Association of Finance & Insurance Professionals (AFIP) is promoting a program that will help dealers (and their finance sources) reduce the risk of being the target of a government fair lending enforcement action involving credit pricing. It is a simple program with two key parts: The dealer selects a standard markup amount (for instance, 2 percent) and applies it to every deal unless an exception ex- ists. The dealer never charges a higher markup than its standard participation rate. When an exception applies, the dealer notes the reason for the exception on a form, keeps a copy, and provides a copy to the finance source. That’s it. Now anyone who looks at the dealer’s data - whether it is an enforcement agency, the financial institutions that buy the dealer’s paper, or even the dealer itself, will be able to tell why one consumer got a better pricing deal than another. The number crunchers who analyze these data will be able to account for the exceptions. This programwould prevent any unexplained pricing disparities in a dealer’s contracts. These forms are available fromAFIP. RouteOne and Dealer- Track have similar forms available in their systems, and RouteO- ne has AFIP’s form, too. The forms are all based on the situa- tions that the Justice Department has deemed to be legitimate, non-discriminatory reasons for a credit price break. Protecting your dealership from unfounded claims of illegal credit discrimination has never been more important, because the risks have never been higher. Don’t make it easy for an en- forcement agency - or anyone else - to reach a wrong conclusion about your credit pricing practices.  Jean Noonan is a partner in Hudson Cook’s Washington, D.C., office. She counsels clients on fair lending issues and a variety of other consumer credit matters. Jean can be reached at 202.327.9700 or by email at jnoonan@ hudco.com.