Pub. 2 2020-2021 Issue 2

wvcar.com 14 WVADA Managing Pricing Discretion in Credit Transactions: A Path Forward O ne of the most attractive benefits to consumers in any industry is purchasing products and services at a discounted price. Discounting saves customers money, allows companies to earn their business and disciplines the prices competitors offer for the same items. In a normally functioning market, it is a win-win for both consumers and businesses. At the same time, discounting involves pricing discretion, and pricing discretion that is not carefully exercised by a business can give rise to concerns about arbitrary pricing and, worse, pricing that discriminates against protected groups of consumers. This concern has driven the efforts of many consumer advocates and government officials over the years to eliminate dealer pricing discretion. In the context of dealer financing, this would be attempted by eliminating the participation that dealers earn for originating credit contracts and replacing it with a non-discountable, flat fee. Many finance sources that are assigned credit contracts compensate dealers with non- discountable flat fees. The National Automobile Dealers Association takes no position on the form of compensation freely entered into by dealers and their finance sources. Nevertheless, NADA has resisted – and will continue to resist – efforts by the government to prohibit finance sources from compensating dealers with discountable dealer participation for originating credit contracts with their customers. The pro-competitive benefits that dealer participation provides to consumers should not be eliminated by unwarranted and untested government intrusion into the marketplace. Notwithstanding the flaws of such a mandate, concerns about “unfettered” pricing discretion expressed by the acting chair of the Federal Trade Commission (FTC) and others should not be ignored. Dealers should consider ways to address those concerns while striving to provide their customers with affordable and competitively priced products. One approach a dealer should consider (managing discretion while promoting competition) when earning dealer participation in a credit contract is to adopt the optional NADA/NAMAD/AIADA Fair Credit Compliance Policy & Program (NADA Fair Credit Compliance Program). 1 The NADA Fair Credit Compliance Program was not developed in a vacuum. Instead, it stems from – and fully adopts – an approach to fair credit compliance outlined in consent orders that the Department of Justice (DOJ) entered into with two automobile dealerships to settle pricing discrimination claims in 2007. 2 In those consent orders, the dealers were required to adopt specifications known as “Guidelines for Setting Dealer