Pub. 4 2014 Issue 2

19 If no record is kept as to the reasoning behind the rate markup, then it could as easily be caused by discrimination as by any- thing else. Protecting yourself is as simple as having a standard markup policy and documenting any exceptions. The Association of Finance & Insurance Professionals (AFIP) has a program for dealers and the associated financial institutions that does exactly what needs to be done to stay on the right side of the law and to reduce the chances of any government agency deciding to target them and their lending practices. You can find out more about the services offered by AFIP at www.afip.com, but basically the program consists of the following: 1. A dealer sets the standard markup in advance and then uses it unless there is a defensible and legal reason for making an exception. 2. In cases where there is a reason for making an exception, the dealer fills out a form that states the reason. (AFIP provides the form.) One copy goes in the dealer’s files, and the other copy goes to the financial institution that makes the loan. This policy does not prevent a government agency from checking on a dealership, of course, but it does make short work of any suspicions the government agency might have. By hav- ing a standard policy and tracking any exceptions, it becomes a simple matter to prove that the dealer is treating customers fairly and staying within the law. Other companies offer similar programs. RouteOne (www. routeone.com) offers the same form as AFIP, and it offers its own form as well. DealerTrack Technologies (www.dealertrack.com ) has its own form as well. All three forms use the criteria set by the DOJ as being legal, nondiscriminatory reasons for a price break on the cost of credit. The risks you face from being charged with credit dis- crimination are serious ones. These companies help you pro- tect your dealership. You don’t have to use their services, of course, but make sure you do something to provide the nec- essary legal protection for each sale your dealership closes. Having a policy to follow, and documenting any exceptions, is a relatively easy strategy to take. It certainly won’t do your dealership any harm. Take proxies seriously In this modern day of political correctness, customers don’t have to give you information about cultural background, race, or sex. As a result, the government relies on something called proxies to make educated guesses about this very information. Using a proxy is obviously not as accurate a method as just asking people about their cultural, biological, or sexual backgrounds and then recording the results, but it is the current accepted method. As a result, proxies are more-or-less accurate, and the margin of error is sometimes a big one. You might think that the chance for making mistakes would invalidate the entire methodology. You would be wrong. Some auto dealers argued this exact point when the DOJ sued them for pricing violations, and they lost. In 2007, a couple of cases were settled when the DOJ allowed two Ford dealerships to of- fer favorable customer financing in specific situations. What do these results mean for you? They mean you are likely to lose if you challenge proxies in a court setting. If enforcement agencies think your dealership is discriminat- ing and they use proxies to find significant differences for how you are treating minorities, you can settle and pay, or you can go to court. How deep are your pockets? How much of a gambler are you? Don’t assume that you will win if you go to court. You don’t know what the outcome will be; you do know that getting there is expensive. Instead, you should probably settle and pay. Cooperate with the CFPB about indirect auto loans You might think that the CFPB is powerless when it comes to your dealership because it does not have jurisdiction over deal- ers whose business involves a service department, most of which are franchise dealers. The exception, as far as jurisdiction is concerned, would be dealerships that hold financing contracts. If your dealership is outside the CFPB jurisdiction, you might decide to be uncooperative because you don’t think the CFPB can do anything about it. That approach could potentially work if the CFPB was the only agency to consider. It isn’t. The Federal Trade Commission (FTC), the U.S. Department of Justice (DOJ), and possibly even your state’s attorney general are also interested in these matters, and their ability to enforce rules could have a devastating effect on your dealership. For example, a dealership that violates the Equal Credit Opportunity Act and Regulation B can be fined by the FTC and can end up paying a civil penalty for every viola- tion that is found. The maximum amount is $16,000, and it can be imposed for every person in a protected group who pays a higher price than someone who is not protected. The protected groups include people such as older buyers, Hispanics, racial minorities, and women. How do other agencies get involved? The CFPB can choose to turn over any information from banks and finance companies that it receives to enforcement agencies. In other words, it doesn’t matter if the CFPB doesn’t have jurisdiction because it still has the ability to get you in trouble with agencies that do. In other words, you may not want to cooperate with the CFPB, but not cooperating with it can still have painful consequences. It would probably be best for you to avoid that happening. n auto-finance — continued on page 20