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#1137955 - 02/28/09 12:08 AM Sharing with Auto Dealer on Indirect Loan
txbankgal Offline
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Joined: May 2006
Posts: 52
Our bank President (also a loan officer) is considering entering into a referral type arrangement with an auto dealership.

The dealership would follow our lending guidelines (& CIP), we would make the loan, they would get a referral fee (a percentage of funds we collect as payments are received from the customer). We would periodically send them a system generated report proving what had been collected.

The 2 issues I'm concerned with are the referral fee and us sharing their personal & financial information to the dealer (even though they would have originally collected the CIP information).

Should we just require they sign a notice explaining the referral fee and that we will share personal and financial info back & forth, specifically listing what we would be sharing?

Thanks in advance for any insight or thoughts on this!
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Lending Compliance
#1138046 - 03/01/09 07:10 AM Re: Sharing with Auto Dealer on Indirect Loan txbankgal
Princess Romeo Offline

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I'll take a stab at this:

There are no RESPA concerns regarding a referral fee on an automobile loan. There are no regulations that prohibit paying a referral fee on an auto loan unless perhaps under State law.

Is the dealer selling the sales contract to the Bank, or is the Bank making the loans directly to the consumer purchasing the vehicle?

If the dealer is selling the sales contract, then you need to be aware of any state law issues concerning indirect lending, and also make sure the dealer is obtaining the CIP information and verification.

If the dealer is simply referring customers to obtain a loan directly from the bank (not unlike CUDL for credit unions I suppose), you still need to ensure that the dealer is conducting CIP according to your bank's program.

In either case, you also need to review the dealer's pricing for fair lending issues. If you are making the loans directly, you may want to make sure there is no disparate impact because of the referral fee.

With respect to sharing information with the dealer regarding the fee - not an issue with an indirect loan since that would fall under _14 or _15 exceptions.

With respect to sharing information with the dealer regarding the fee, you may still have a _15 exception especially since the dealer will already have the name, make and VIN of automobile as well as purchase price and down payment. I can't think of what you would be sharing with the dealer other than the last name, date of sale, ID of the automobile, amount of loan and amount of fee. I see no reason for your institution to share anything beyond that, unless the loans were sold to your bank with recourse.
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#1138770 - 03/03/09 02:25 PM Re: Sharing with Auto Dealer on Indirect Loan Princess Romeo
txbankgal Offline
Member
Joined: May 2006
Posts: 52
Thanks Bonnie! I didn't think we had to disclose the fee but I was using an affiliate notice to refer to (although this is not an affiliate) and wanted to be sure.

On the sharing info back to the dealer - we may be sharing balance and payment information since that is what the fee will be based on, which is non-public. I would think we can just disclose it and have them sign & date a notice.

Does anyone know where I might find a little more info on this type of indirect lending sitution?

Thanks again! confused
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