Pub. 14 2015-2016 Issue 2

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E N O . 3 , 2 0 1 5 18 new jersey auto retailer EVOLVING ISSUES  continued from page 16 strengthen the CFPB’s argu- ments. For now, dea le r sh ips wi l l have to adopt ECOA compli- ance programs (such as the model program created by the NADA), though there is some hope Congress may come to the aid of the industry. A Bill that would repeal the CFPB’s 2013 “Guidance” is making progress, having recently been approved by the House Financial Services Committee with bipartisan support. Another area that appears to be evolving involves “adverse action notices.” Two separate federal laws, the ECOA, and the Fair Credit Reporting Act (FCRA), require any finan- cial institution which makes a decision adverse to a credit applicant to provide the ap- plicant with an “adverse action notice.” For decades, it was the belief and practice within the industry that a dealership which intends to sell all of its finance contracts, and which submits all applicants to an institutional lender for pre-approval, does not have to send a duplicative adverse action notice, if the institutional lender which de- clined the applicant sends one. The practice in the industry appears to be slowly evolving. There have been a handful of cases in which courts have held that a dealership should have sent adverse action notices, but all of those cases involved a dealership that made its own, independent decision to reject an applicant, as opposed to submitting the applicant to an institutional lender and rely- ing on that lender’s decision. Nevertheless, the NADA has recommended that dealerships should send adverse action notices in all cases where an adverse decision is made, by the dealership or the institutional lender, and more dealerships are starting to do so. On the State level, an issue has arisen over a matter as basic as the status of “GAP” products, whether they are considered insurance under State law and whether a Department of Bank- ing and Insurance (DOBI) license is required to sell them. New Jersey passed a law 14 years ago known as the Insur- ance Producer Licensing Act of 2001 which specifically states that “automobile dealer gap insurance” is considered to be a form of limited lines credit insurance. DOBI regulations adopted pursuant to the law makes this clearer; N.J.A.C. 11:17-1.2(b) sets forth the fol- lowing definition: “Credit insurance” means in- surance coverages for credit health and credit life as defined in N.J.S.A. 17B:29-2, credit disability, credit unemploy- ment, involuntary unemploy- ment, mortgage life, mortgage guaranty, mortgage disability, automobile dealer GAP, credit property and any other insur- ance offered in connection with the extension of credit that is limited wholly or partially to reducing or extinguishing that credit obligation. New Jersey’s automotive retail community has complied with this requirement for years now, but recently, NJ CAR started to receive reports that some GAP product suppliers have repre- sented to the dealerships that their products are not insurance and that no DOBI license was required, and dealerships have received conflicting informa- tion when they have contacted DOBI in an effort to clarify this issue. It appears that some GAP providers are attempting to avoid the burden of New Jer- sey’s insurance regulations by claiming “GAP is a waiver, not insurance.” This view of GAP products is a vestige of the now repealed federal law commonly EVOLVING ISSUES  continued on page 19