The effects of a major revamping of federal regulations surrounding credit cards have emerged and the impact has mostly been on the consumer side. But consumer-lending officials say the effect on the dealerships isn’t far behind.
Last May, President Obama signed the Credit CARD Act of 2009, a sweeping reform of credit card policy. The law was intended to provide consumers with more protection against unfair credit card fees while providing more disclosure about the long-term effects of potential purchasing decisions.
In a press release, Obama characterized the credit card reform as “built on transparency, accountability and mutual responsibility.”
More recently the law has gained national attention because of its immediate effects on consumers. A survey by Credit.com showed 45 percent of consumers had seen a change in their credit cards leading up to the reform’s February start date. Some of those changes have included increased interest rates, increased fees and lowered credit limits.
How will the credit card reform package affect dealerships?
Jeff Karls, a vice president of marketing for GE Money’s powersports division, sees two potential impacts — one on the higher-risk credit applicant and one on new unit marketing.
“It impacts everyone, basically, from the consumer to the lender and dealers as well,” he said of the reform package. “One of the biggest impacts for our industry is how you disclose the various terms that are offered to the customer.”
Many of the specifics of exactly what must be placed in advertising regarding special revolving loan packages were still being finalized as recently as last December with the reform package working its way through the federal rule-making system. However, as the reform becomes law, it’s apparent the attempt at credit card loan “transparency” will mean substantial marketing changes.
“There’s a lot of complexity around what you need to disclose,” Karls said of revolving loan offers to consumers.
The Federal Reserve highlighted a number of those potential changes recently. They include:
An eye on prominence: Regulatory changes will dictate if a special payment amount is advertised that the ad also provide information on the total number of payments and the time period that is needed to repay the total sum in the same type size as the special payment amount.
Close proximity: Where the additional loan information on the above example is displayed on an advertisement also factors into the new federal regulations.
Trigger terms: The government is highlighting certain phrases, such as “No interest charges until May,” as “trigger terms,” which need to be accompanied with additional information to the consumer.
And it’s not just newspaper or radio advertisements that will be affected. Karls said OEMs and finance companies will have to work on every piece of marketing material they have to meet the new requirements – from the banner on the dealership wall to the hang tag on the new unit.
“People are going to have to adapt to the new rules,” he said. “And every lender is going to interpret this a little differently. Some of it even depends on who their regulator is.”
The reform package also could potentially impact those with low credit scores and their ability to get financed. But Jack Snow, CEO of Sheffield Financial, says the new regulations will bring about some needed reform that in the long term will help consumers pay off their loans in a timely manner.
“The days of those crazy promotions — $29 per month or $39 per month — are gone,” he said. “So in that respect, I think it’s going to be good for the consumer.
“When you put the consumer at a disadvantage, in the long run that’s not good for anybody, and that includes the finance company.”
— Neil Pascale