If we Run Credit on Someone……
Dear Jan,
I was at a seminar a few years ago and was told that as a dealer if we ran credit on a customer that we had to submit that credit application to at least one lender so the customer would either get an approval or denial later from an actual lender.
I was told that the consumer had to receive some kind of letter from the lender within 30 days or every day after that there would be a large fine. With RV lending being so difficult and the lenders watching the look-to-book ratios so closely, I need to know if this is really the law?
If we pull a customer with a 520 credit score, I don’t want to send them to any of my lenders as I know they will not get approved and it ultimately hurts my look-to-book ratios.
Just looking for some answers.
- Darcy
Dear Darcy,
There is NO law that says a dealer has to submit a customer’s credit application to a bank/lender.
The dealership does have to send the customer an adverse action letter whether or not the application was submitted to a lender. The adverse action letters can be found in Regulation B / ECOA (12 CFR202, Appendix C); they begin on page 33 and continue.
An adverse action letter advises the customer of the reason for the denial of insurance, job or credit. You should find the appropriate letters and send them, as the wording cannot be altered on the letters; all you can do is enter the applicants name and the name and contact information of the credit bureau company you use. The letters do have a timeline of being sent to the applicant within 30 days of the decision.
Fines: Punitive damages can come in the amount not greater than $10,000 in addition to actual damages; you then open your dealership up for class action lawsuit penalties that shall not exceed $500,000 or one per centum of the net worth of the creditor. By the way, the dealership is viewed as the creditor until the retail installment contract is paid for by a funding lender. Not to mention, I am sure if it goes this far, the attorneys will begin a lawsuit under the state’s “Unfair and Deceptive Business Practices” laws.
Life is so much easier to simply send the applicant an adverse action letter. Keep a copy of the adverse action notice on file; make a note of how and when it was sent.
Record retention for notices is five years.
As for look-to-book ratios, I am glad you are watching them. Most lenders want a 40 percent or better.
Regardless, one reason for submitting a credit application, maybe the lender could approve the loan. If the credit report was 14 pages and the best thing is your inquiry, I would agree – the lender is not going to approve the application. After all, Darcy, some common sense should prevail.
I hope this has been helpful. I have a one- day compliance seminar. It would be helpful for you to attend it.
As always, this information is meant to be educational, not legal advice. As everyone knows, I am not an attorney, nor a judge.
JanRV Trade Digest May 2009