Litigation risk update – Indirect lending and FCRA

Like all businesses, credit unions face potential litigation risks. For our industry, sometimes the lawsuits that impact banks can have an impact on credit unions later. To start the week off, I wanted to touch on two separate items to keep an eye on – plaintiffs’ attorneys targeting credit union indirect auto lending programs and litigation asserting claims under the Fair Credit Reporting Act (FCRA).

Indirect Lending

Sometimes in an indirect auto lending relationship, auto dealers can increase the interest rate on car loans a bit higher than what the borrower otherwise qualifies for and keep some or perhaps all of the difference. This is part of how dealers may be compensated, but since that could create an incentive to maximize compensation, these kinds of programs frequently have controls in place from a due-diligence perspective. NCUA issued guidance in August 2010 for all federally insured credit unions and these long-standing risk management practices and NCUA examiners in past years have carefully scrutinized credit unions’ indirect lending relationships.

Through a post on the website, plaintiffs’ attorneys were specifically seeking consumers who purchased cars at auto dealers with financing provided by credit unions. The post claims that borrowers may have received loans with credit unions as “preferred lenders” but paid higher interest rates that “allows the dealership to take a cut of the interest” without that additional interest mark up being disclosed to the consumer.


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