Powersports manufacturers should pay attention to compliance issues under the Truth in Lending Act and the CARD Act, particularly if they are considering partnering with revolving credit providers that might trickle into the space soon, said John Redding, partner at BuckleySandler LLP.
Partnering or operating in the revolving credit space could prove risky for institutions that do not keep ahead of compliance issues, Redding told Powersports Finance.
For example, the Truth in Lending Act of 1968 is a U.S. federal law that could affect institutions involved in the revolving credit space the most, Redding said. The law promotes the informed use of consumer credit by requiring disclosures about its terms and cost. Additionally, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) is another federal law that could affect institutions. The law fundamentally changed credit card issuers’ practices and consumers’ rights by prohibiting unfair or abusive practices.
It is important, especially in the revolving credit space, that companies ensure advertising, marketing, and sales techniques are accurate, Redding said. “And — we saw this in a number of consent orders early on in the Consumer Financial Protection Bureau’s history — make sure that you are not over-promoting the benefits or underselling the limitations.”
The CARD Act, for example, prohibits hiking up the rate on an existing balance. It also prohibits allowing a customer to go over limit, then imposing an overage fee, according to the CFPB’s website.
“Make sure that, to the extent you are engaged in that [revolving credit space], you are thinking through the way in which these products are being marketed and sold,” Redding advised.
Additionally, powersports manufacturers and revolving credit providers should think about these credit card products, and anything associated with the program, to ensure that legal and compliance teams are involved in discussions from the beginning, he said.
“Because in that way, [the compliance team] can help to design products that meet the company’s goals, are good for consumers, and mitigate the risk of future action by a regulator,” Redding said. “Whereas, if you bring them in later, frequently we’ve seen it takes quite a bit of work, to get around say a particular issue that may just not have been considered during the design process.”