Lender abolishes dealer reserve

North Carolina-based BB&T Dealer Finance, a division of BB&T Dealer Financial Services, has announced the launch of a nondiscretionary dealer compensation program, providing a competitive automobile financing program that eliminates pricing discretion in the consumer transaction.

The program changes will go into effect on July 1, 2015, and will no longer allow dealer markup on retail instalment sales contracts. BB&T Dealer Finance will instead offer a flat-fee dealer compensation program.

“We are committed to the fair and equal treatment of all consumers,” said Derek Lane, BB&T Dealer Financial Services manager. “The automobile finance industry provides a valuable service, and we highly value our long-standing dealer relationships. This new program will strengthen the process long-term for both consumers and our dealer clients.”

BB&T makes mostly prime-risk auto loans in mid-Atlantic and Southeast states, plus Texas. The new flat fee, which does not apply to Regional Acceptance Corp., a BB&T unit which offers subprime auto loans nationwide, is believed to be 3% of the amount financed, up to a maximum fee of $2,500.

This is the first time a major auto lender has committed to removing the dealer reserve, which has come under attack from a number of consumer-facing organisations including the Consumer Financial Protection Bureau (CFPB). The federal agency issued guidance in 2013 indicating it would like to eliminate the practice.

That guidance is now the subject of bipartisan efforts in Congress from senior Republican and Democrat representatives seeking to have it rescinded. They have introduced H.R. 1737 the Reforming CFPB Indirect Auto Financing Guidance Act of 2015.

The legislation has the support of 149 House Republicans and Democrats. In addition to rescinding the CFPB’s guidance on dealer reserve arrangements, H.R. 1737 would require the bureau to follow a transparent process – including providing for a public comment period, consulting with the agencies that share jurisdiction over the indirect auto financing market, and disclosing its testing methodologies – prior to issuing any future guidance related to indirect auto credit.