According to a recent Wall Street Journal article, the National Automobile Dealers Association (NADA) has issued fair credit guidance to assist auto dealers in complying with the CFPB’s March 2013 indirect fair lending bulletin.  The bulletin stopped short of mandating the elimination of dealer finance charge participation.  However, in remarks made since the bulletin’s issuance, Director Cordray and other CFPB officials have expressed a strong distaste for dealer finance charge participation as a method of dealer compensation in the indirect auto finance market. 

Dealer participation involves a dealer setting the finance charge above the rate at which a bank or finance company has indicated it might be willing to buy a retail installment sale contract, with the dealer keeping  a portion or all of the difference. The CFPB has charged that dealer participation has resulted in dealers charging higher rate markups to minority than non-minority buyers. 

As described in the WSJ article, NADA’s guidance recommends that dealers set a standard markup for all buyers, which can only be reduced for specified reasons, such as a competitive rate from another dealer or lender.  The guidance appears to be modeled on two 2007 Department of Justice settlements in fair lending cases involving two Pennsylvania car dealers.  The consent orders required the dealers to establish guidelines for their employees to follow in setting markups that required the employees to start negotiations in each transaction with the markup set at the same, predetermined level.