LAS VEGAS — Regulators are scrutinizing annual percentage rates and ancillary products “more commonly today than ever before,” which is why powersports lenders should be cautious and prepared, said David Gemperle, partner at Nisen & Elliott LLC.
“Typically, if you operate the vehicle on a highway, your finance products will be regulated much like motor vehicle finance products,” Gemperle told attendees at PowerSports Finance 2016, so powersports lenders should be particularly be aware of regulations under the Truth in Lending Act.
The backbone of Regulation Z, an implemented regulation under the Truth in Lending Act, is annual percentage rate, Gemperle said. Regulation Z requires lenders to disclose all the specifics of a given loan, in order to promote a level of credit protection for the underlying consumer, he explained.
“What that requires is a distinction between amount financed and a finance charge,” he said. More specifically, would someone have been charged the same amount in a cash transaction?
For example, regulators are looking for allegations that the cash prices were inflated for credit borrowers, but not for non-credit borrowers,”he said. Those differences should have been disclosed as a finance charge, Gemperle added.
Additionally, regulators are on the lookout for ancillary products — such as guaranteed-asset protection coverage — that are not disclosed as optional, or allegations of misrepresentation, such as a finance charge disclosure error. “It’s critical to be clear that the ancillary product is not required to get credit,” he said.
To prepare for regulation, powersports lenders should start by putting someone in charge that has authority to delegate tasks to others, Gemperle said. “And they should be reviewing auto finance examination procedures, bulletins, and review models from the federal government, because that’s an excellent way to read something that has already distilled the technical statutory requirements down to a readable format,” he added.
Additionally, powersports lenders’ policies should be updated, and staff should be trained, he added. “Then take a look back at what you’ve done,” and “scrutinize yourself,” he said.