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For indirect automobile loans, are we required to keep copies of the credit score disclosure or risk-based pricing notice to prove the customer received a copy? Regulation V indicates that if we arrange to have an auto dealer or other party provide the credit score disclosure or risk-based pricing notice as required, we must maintain reasonable policies and procedures to verify they provided these notices to the customers in the required time period. How can we document compliance with this requirement, and do you have an example of such a policy or procedure?

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We do not believe that Regulation V explicitly requires banks to keep copies of credit score disclosures or risk-based pricing notices for automobile loans to prove that customers received a copy. Regulation V requires creditors only to maintain “reasonable policies and procedures to verify that the auto dealer or other party provides such notice to the consumer within the applicable time periods” when the creditor arranges to have the auto dealer or other party provide the required credit disclosure or risk-based pricing notice. This requirement applies only to the initial creditor, which Regulation V deems to be the party to whom the loan is initially payable.

We are not aware of any examples of such policies or procedures or any CFPB guidance clarifying what constitutes a “reasonable policy or procedure” in this context, although we will submit a request for sample policies or procedures to our Compliance Division Advisory Committee. We believe that requiring the relevant auto dealer to provide your bank with a copy of the applicable notice that it has sent to your customer would be a reasonable policy and procedure, as it would demonstrate your compliance with this requirement.

For resources related to our guidance, please see:

  • Regulation V, 12 CFR 1022.73(c)(2) (“When a person to whom a credit obligation is initially payable grants, extends, or provides credit to a consumer for the purpose of financing the purchase of an automobile from an auto dealer or other party that is not affiliated with the person, any requirement to provide a risk-based pricing notice pursuant to this subpart is satisfied if the person:

(i) Provides a notice described in §§ 1022.72(a), 1022.74(e), or 1022.74(f) to the consumer within the time periods set forth in paragraph (c)(1)(i) of this section, § 1022.74(e)(3), or § 1022.74(f)(4), as applicable; or

(ii) Arranges to have the auto dealer or other party provide a notice described in §§ 1022.72(a), 1022.74(e), or 1022.74(f) to the consumer on its behalf within the time periods set forth in paragraph (c)(1)(i) of this section, § 1022.74(e)(3), or § 1022.74(f)(4), as applicable, and maintains reasonable policies and procedures to verify that the auto dealer or other party provides such notice to the consumer within the applicable time periods. If the person arranges to have the auto dealer or other party provide a notice described in § 1022.74(e), the person’s obligation is satisfied if the consumer receives a notice containing a credit score obtained by the dealer or other party, even if a different credit score is obtained and used by the person on whose behalf the notice is provided.”)

  • Regulation V, 12 CFR 1022.75(b)(1) (“Initial creditor. The person to whom a credit obligation is initially payable must provide the risk-based pricing notice described in § 1022.72(a) or (c), or satisfy the requirements for and provide the notice required under one of the exceptions in § 1022.74(d), (e), or (f), even if that person immediately assigns the credit agreement to a third party and is not the source of funding for the credit.”)
  • Regulation V, 12 CFR 1022.75(b)(3) (“Example. A consumer obtains credit to finance the purchase of an automobile. If a bank or finance company is the person to whom the loan obligation is initially payable, the bank or finance company must provide the risk-based pricing notice to the consumer (or satisfy the requirements for and provide the notice required under one of the exceptions noted above) based on the terms offered by that bank or finance company only. The auto dealer has no duty to provide a risk-based pricing notice to the consumer. However, the bank or finance company may comply with this rule if the auto dealer has agreed to provide notices to consumers before consummation pursuant to an arrangement with the bank or finance company, as permitted under § 1022.73(c).”)
  • CFPB, Auto Finance Examination Procedures, page 25 (August 28, 2019) (“Alternatively, the entity may arrange to have the auto dealer provide a notice to the consumer on its behalf within these time periods and maintain reasonable policies and procedures to verify that the auto dealer provides the notice to the consumer within the applicable time periods.”)