So, I read through most of the threads but was wondering what have you all decided to do regarding the Risk Based Pricing Notices and your indirect lending customers?

It appears that the RBPN notification process is the bank's responsibility even though final pricing is in the dealer's realm, so how are you all working this? Exception Notices to all applicants I assume, but are you sending them from the CRAs or from the bank through the dealer or?

Thoughts?

We discussed this recently somewhere down below. My memory says we came up with it being the Bank's responsibility. Let me see if I can find that thread for you.

Found it at: http://www.bankersonline.com/forum/ubbth...850#Post1454850

Thanks Okie, I did read through those but didn't see how anyone was actually going to conform with the rule and I'd love to hear how the mechanics are going to work for banks with indirect lending.

Sorry. I missed the "what have you decided to do" comment and honed into who's responsible. We are looking into the same thing. I'm thinking "It takes a village" and thank goodness for BOL as we go forward addressing these issues together.

No problem Okie! Seems like no one wants to chime in here, or they're as confused as I am, lol. Thanks again.

I believe we are going to have the dealers hand out the credit score exception notice. I don't think we can rely on the CRAs to send the notice, since it must be provided at/before consummation.

Fixed.

I worry about them sending it before loan approval as much as sending it after consummation. I can see ordering a report and the CRA dropping the disclosure in the mail that day and the officer, for some reason or another, doesn't get approval to the customer for a couple of days (vacation, sick days, long weekends...).

Well, the more research I do, the more I feel that the dealer will have to be the one to give the RBPN exception notice at loan approval.

Think of how many times you have bought a car and did the deal in the matter of an hour or two; doesn't leave the bank much time to get the RBPN disclosure to the customer prior to consummation.

I am going to have to put this into the hands of our indirect department and let them try ot figure out how we can do it as they are much more intimately familiar with the process.

From the FCRA:

I interpreted it as the dealers' responsibility.

Maybe I'm way off base...
However, my execs want a signed statement from each dealer. Anyone else working on an agreement like this?

Hi Edward, I would agree if you have a situation where the bank is buying the paper from the dealer, but I don't think that would be true indirect lending.

I know when I have gone to buy a vehicle, the note I sign is directly payable to the bank, not the dealer.

I can understand that, however, our Illiana contracts (the standard around here anyway) state:
So while the contract may say the name of the financial institution, it is dealer that is providing credit and then assigning the loan to the financial insitution.

Interesting....

OK, I was thinking about this in the shower this morning, and my interpretation is:

If the dealer makes the credit decision and then assigns or sells the loan to a bank (possibly a buy-here, pay-here dealer), then I could see the dealer being responsible for RPBN compliance/giving the RPBN Notice to the customer.

If the bank makes the credit decision and the dealer would not do the transaction without the bank's loan, then I believe the bank is responsible for RPBN compliance.

Again, JMHO.

I agree. Page 2730 of the federal register seems to back that up as well.

We do indirects where we make the decision. We do not want to rely on auto delaers to provide the notice. We are exploring with our CRA who has indicated that they are trying to set up a means to provide the notice. In viewing the posts in this thread, are some of you assuming that we can't use the CRA because of the timing requirement for the notice? We were going to set the credit score and anything below would get the notice (not exactly that way probably but the concept isn't final yet). Are you saying that the notice can't go at the point of ordering the report...that we have to grant the approval and then the notice has to go out???

If you don't rely on the dealer to provide the notice to the customer at approval and the borrower consummates the deal just after obtaining the bank's approval, how will you be in compliance timing-wise?

I don't see another option, unfortunately.

Reading this thread makes me thankful that the margins got so bad that we decided to get out of this business line about two years ago... I don't eny any of you on this one.

IMO, I do agree with your analysis though.

See 222.73(c)(1). For closed-end credit a notice must be provided before consummanation but NOT earlier than communication of approval to borrower. Immediately upon ordering the credit report might be earlier than the time the approval was communicated to the borrower.

Trees,

There are different timing requirements depending on which notice you provide.

If you decide to use the risk-based pricing notices (H-1), then the notice must be provided before consummation, but not before the loan has been approved.

If you use the credit score notice (H-4 & H-5), then the notice must be provided as soon as possible after the credit score has been obtain, but in all cases at/before consummation.

If you rely on the CRA, the customer isn't going to receive the notice before they close the loan.

Well, I found out this morning that we do indeed have dealers who make the loans payable to themselves and then immediately assign it to the bank, so the RBPN requirements are in the realm of the dealer's reponsibility.

Until we get more or different guidance, we are formulating a statement that the dealers will sign stating that they are required to comply and are actively complying with the RBPN section of the FCRA.

Maybe I'm oversimplifying this, or maybe its just that our indirect department's processes are unique.

We make the credit decision. We have determined it is our responsiblity to provide the notice.

What happens is the indirect LO pulls our own bureau report, and makes a decision. Upon making the decision, the LO contacts the finance manager at the dealership to communicate that it has been approved.

What we have proposed is that when the approval decision was communicated to the finance manager, the LO would fax over the disclosure that was created with the bureau pull with instructions to provide to customer(s) prior to consummation.

Does anybody see any holes in this plan?

12 CFR §222.74(e)(3)
(3) Timing. The notice described in paragraph (e)(1)(ii) of this section must be provided to the consumer as soon as reasonably practicable after the credit score has been obtained, but in any event at or before consummation in the case of closed-end credit or before the first transaction is made under an open-end credit plan.

My reading regarding the RBPN is it doesn't matter who makes the credit decision, it is based on whom the original credit obligation is initially payable to determine actual responsibility.

As a side note: I'm assuming that the customer is fully aware that their application has been sent to the bank and that the bank will also be running a credit report???? How are the adverse actions handled?

Yes, they are made aware of this when they fill out their application at the dealership. It's outlined in our contracts with them.

Regarding AAN's - The indirect department communicates to the finance manager that we won't do the deal, and then we mail an adverse action notice to the applicant(s).

Compliance rules: We are leaning towards your approach, however, we are realistic about what we want/expect dealers to provide customers. We're checking around locally to see whether or not any other banks, offering indirects, are asking the dealers to provide the notice......I attended a BOL webinar recently and I thought they idncioated that banks could, in this type of scenario, elect to provide the notice on behalf of the dealers. Anyone else pick this up during the webinar??????

This is exactly what we are going to do.

Read the Reg in its entirety. Used my brightest highlighter. Still have questions. Our dealers do not pull the credit reports, as the reg uses in its example. The get an application and shop it to some banks. We are one bank. We pull the credit report and let the dealer know the terms for which we will finance the loan. We learn only after the customer has signed the contract whether or not the dealer took our deal or some other bank's terms. This is too late, obviously for the bank to send the notice. Then I saw where the regulators pointed out the possibility that the customer will get notices from lots of banks if we all send the notice as we have "approved" the loan (although the customer doesn't know this yet. I am still mixed up with the timing and who sends under the process we have in place. Does any other bank work like us? Need to discuss - my dime. PM me. Also, we are using tiers. Do we sitll have to send the bar graph and indicate their score???

For those having the dealer provide the notice....is anyone willing to share the notification they gave to their dealers regarding this?

We already have in our contracts that they will comply with the regs, so I don't think this needs a contract amendment, but certainly a notice that they sign and return acknowledging they know the requirements, they will comply, and will evidence compliance in the files.

We do not make indirect auto loans, but we do make indirect auto leases. Would leases be covered? Would we need to provide the RBPN or the credit score exception notice?

We do have an indirect lending department. It is my opinion that the notice should be given by the dealer.

Trees-We are in the same boat. The dealers do shop. When the customer signs the note the note states thier name as the borrower and the dealer's name as the creditor. Once you reach the end of the note. Our bank is listed as an assignee. It is for this reason I believe this task should lie in the hands of the dealer.

After speaking to one of the indirect lenders, they say we basically buy the loan from the dealer.

My main question is: how do we ensure the dealer is complying with the regulation?

Flamingo- How is the statement worded,regarding compliance for the dealer on your contract?

"Under the new Risk Based Pricing Notice section of the Dealer Agreement, Dealer agrees that for both Installment Contracts and Loans it will use the "other extensions of credit- credit score disclsoure" exception specified in the Risk Based Pricing Rules, and will provide the model form of notice specified in the Risk Based Pricing Rule for use with that exception to each applicant for an Installment Contract or a Loan.

Further, Dealer is hereby put on notice that for each Loan submitted to (Your Bank Name)for funding, the applicable notice for each applicant for the loan using the "other extensions of credit-credit score disclosure" exception form will be required for funding. If the form is not included with the paper work sent in for funding, we will not fund the Loan until we get a copy of the notice provided to the applicant."

I'm scared about relying on a dealer to provide the notice, at least while all of this is still getting sorted out by the CRA's. If I can't get my provider to fully automate a solution for me at this stage (3 weeks until compliance date), then I'm not confident that a dealer would have any better luck.

For now, we're sticking to our original plan of faxing the notice over when the approval is communicated to the finance manager who will then provide it to the applicant prior to signing the contract.

That's what we are doing as well.

I atill want to fax over the notice. Now we are all over the place as to whic notice. We base pricing on tiers, and our Credit bureau is recommending that we go with the notice with the charts at the end. We will have to have a means of sorting out the notices so that the ones in the top tier don't get it. Are you lucky guys also using the model form with the graph at the end??

Yes, but if you are using that one you just provide it to everyone as opposed to the tiered (or credit score proxy if using a different pricing model). Those methods are only applicable for the RBPN notice, not the credit score exception notice.

I didn't think the loan products we were dealing with would fall under one of the credit score exceptions. How did you derive that??

We work with indirect dealers. We do offer risk based pricing based on credit scores. The dealer may or may not have pulled a credit report. When we receive the application for consideration to purchase the deal, we pull a credit report and based on the credit we tell the dealer what we would be willing to offer. If the customer agrees to our offer, the credit obligation is written between the customer and the dealer. We are named as an assignee. As such, the RBPN is the obligation of the dealer and not our obligation.

Our bank wants to complicate things and wants to send out the H-1 notice to those applicants who do not receive our best offer. I do NOT think that we should do this. First, by sending the notice, I am concerned that we could be considered an agent for the dealer and I do not think that is a position that we should put ourselves in. Second, we don't even know if our offer is accepted until after the contract has been signed and presented to us for purchase. Third, at the time of our application review the customer is NOT our customer, but that of the dealer. I do not think that we should be communicating directly with the dealer's customer.

I think that it is the dealer's obligation to provide the notice. If the dealer complies, then great. If the dealer is out of compliance, we have no obligation regarding the notice...not our problem.

Would anyone agree with me? Or am I off base?

Doorkey,

We are also doing indirect dealer loans.

You said "If the dealer is out of compliance, we have no obligation regarding the notice...not our problem."

I would have to disagree to the extent that the commentary section on the final rule states that "...and maintains reasonable policies and procedures to verify that the auto dealer or other party provides such notice to the consumer within a reasonable amount of time." This is on page 2738 for the Federal Register notice, column 3.

We have made changes to our policies and procedures to make sure that the contract includes a copy of the notice that the dealer provided to the consumer is obtained, added to our checklists, etc.

Needs to Know -- Your reference to page 2738 refers to when the initial creditor is the financial institution. In our case, the dealer is the initial creditor and we are the assignee. Section 222.75(b)(2) states "Purchasers or assignees. A purchaser or assignee of a credit contract with a consumer is not subject to the requirements of this subpart and is not required to provide the risk-based pricing notice described in §222.72(a) or (c), or
satisfy the requirements for and provide the notice required under one of the exceptions in §222.74(d), (e), or (f).

I conclude, therefore, that we, as an assignee, have no duty to provide the notice and I find nowhere in the regulation that we have an obligation to ensure that the dealer has policies and procedures in place to provide the notice. We do have contractual language with the dealer that makes them responsible to comply with state and federal laws and regulations. If we know that they do not comply, then we will need to change our relationship with the dealer.

I just noticed this from the recently released Interagency Exam Procedures.



This may provide some comfort for those struggling with whether their proposed processes will pass the smell test.

DoorKey:

For whatever it is worth, our bank handles indirect financing like yours does and our interpretation is the same as yours. We have notified our dealers of their responsibility but are not planning to do anything more.

Since a bit of time has elapsed since you first posted your comments, I am wondering....are you still proceeding as originally planned?

I, like you, am not finding anything to suggest the bank needs to do anything when it is the assignee in an indirect deal, and I concur, the reference that Needs to Know made to page 2738 does not pertain to our scenario.

Your thoughts today?

I agree with DoorKey and Dutch and I am sure the new CFPB will be all over the car dealerships doing compliance audits as soon as they are let loose.....:)

Or... they could stick to banks and expect us to enforce it as they've done in the past with numerous other issues. Time will tell.

Maybe my sarcasm wasn't obvious enough

We don't believe the examiners will let the banks off so easily. Therefore, we are running a credit report and providing the notice, via fax, to the dealer along with our decision. We are doing this based on the fact that we are the one making the final decision and we use a tiered pricing system provided to the dealers. We will have our friends here this year, usually in the Spring. If they want us to change, I'll let you all know. There is no way I will rely on dealers to provide the notice on their own unless the examiners tell us this is OK...

The way I understand the rule, is if the note is made immediately payable to the Bank, then it is the Bank's responsiblity to provide the notice. But, if the note is initially payable to a dealer, but then assigned to the Bank, then it is the dealer's responsibility to provide the notice.

Our indirect operations have the note made payable directly to us, so we are responsible for providing the notice.

Trees: I know this all sounds too good to be true, but quite honestly, I don't know what grounds the regulators would have to make banks provide the notice when they are the assignee in a transaction. Section 222.75 spells it out pretty clearly. Maybe, just maybe, banks are finally catching a break! We are hanging our hat on the written word (see page 2759 of the Federal Register) as we are clearly the assignee on all of our indirect deals.

Dutch -- Based on your question posted on December 29, yes, we are proceeding as I had indicated. He have, however, added a statement to our approval letter to the dealer that reminds the dealer of its notice responsibiliy.

DoorKey: We ended up doing the same thing; added language to our approval letter in an effort to remind dealers of their responsibility.

Appreciate the feedback - thanks for taking the time.

If I am reading all this correctly, it would appear to me we could allow (read contract the dealer )to provide the RBPN (exception notice ). Even if it is not the credit report or score we used to make our decision.

From the FFIEC Exam Manual


**For automobile lending transactions made through an auto dealer that is unaffiliated with the institution, the institution may provide a Section 222.74(e) notice in the time periods described above . Alternatively, the institution may arrange to have the auto dealer
provide a Section 222.74(e) notice to the consumer on its behalf within these time periods and maintain reasonable policies and procedures to verify that the auto dealer provides the notice to the consumer within the applicable time periods. If the institution arranges to have the auto dealer provide a Section 222.74(e) notice, the institution complies if the consumer receives a notice containing a credit score obtained by the dealer, even if a different credit score is obtained and used by the institution. (12 CFR 222.73(c)(2))

From the REg 222.73(c)(2)(ii)
(ii) Arranges to have the auto dealer or other party provide a notice described in §§222.72(a), 222.74(e), or 222.74(f) to the consumer on its behalf within the time periods set forth in paragraph (c)(1)(i) of this section, §222.74(e)(3), or §222.74(f)(4), as applicable, and maintains reasonable policies and procedures to verify that the auto dealer or other party provides such notice to the consumer within the applicable time periods. If the person arranges to have the auto dealer or other party provide a notice described in §222.74(e), the person's obligation is satisfied if the consumer receives a notice containing a credit score obtained by the dealer or other party, even if a different credit score is obtained and used by the person on whose behalf the notice is provided.