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We belong to a lot of social media industry groups. We like to monitor them to gain a better understanding about what's on the minds of dealers. Sometimes a discussion will grab our attention and make us want to write about it. This happened recently when a dealer was asking about whether it could offer different interest rates based on the credit quality of the applicant.
How do you Rate?
Questions pertaining to rate and deal structure always generate some healthy debate. One dealer commented that the rate had to be based on state usury limits. Another weighed in that he only used one rate because he feared that varying rates could be interpreted as a form of discrimination. Yet another talked about the risk based pricing rule. Several others chimed in with their own rate experiences over the years.
What struck us as missing from the conversation, though, was any mention about the importance of the development and vetting of a documented underwriting policy. This is a dealer's first line of defense if an applicant alleges that credit was unfairly denied, or that it got a higher rate than someone else.
Underwriting Policy to the Rescue
A few years ago, we helped a client develop its Underwriting process. It explained the rates available to customers, how eligibility was determined, and other criteria that went into determining creditworthiness and the verification process that would be followed. This policy came in handy last year, when a denied applicant complained to its state Attorney General and alleged discrimination. Fortunately, we made the issue disappear with one letter because we were able to provide the policy and explain why the decision was made based on the circumstances.
Tip of the Week
So our Tip of the Week is to understand why written policies are important in the first place, and the critical role they play in protecting your business. Policies are one of the important guardrails that allow a company to demonstrate their understanding of where laws and business intersect. Please reach out if any of this sounds foreign, or if you haven't recently vetted your own policies. If you have any questions. Please reach out to info@ignitecp.com
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