Adverse Action - A refusal to grant credit in substantially the amount or on substantially the terms requested in a credit application unless the creditor makes a counteroffer and the consumer uses or expressly accepts the credit offered in the counteroffer. Also, the termination of, or unfavorable change to, an existing credit account or an action taken in connection with an application or an account that is adverse to the interests of the consumer.

Adverse Action Notice - Under the ECOA, any creditor "who in the ordinary course of business regularly participates in a credit decision, including setting the terms of credit," needs to notify a consumer of taking adverse action on a credit application within 30 days after receiving the completed application. This includes an auto dealer that participates in the credit process such as by seeking lenders, rehashing, or marking up buy rates. Under the FCRA, an adverse action notice must be provided if the adverse action was based in whole or in part on information contained in a consumer report and must identify the credit bureau whose report was used. These two notices can be combined in one adverse action notice form.

Arbitration - A process by which a dispute is decided by a private individual or panel of individuals under a set of agreed-upon rules instead of through a lawsuit. Arbitrators are not always required to strictly follow legal precedent in making their decisions. Appeals of arbitration awards are very limited.

Bank Secrecy Act - A federal anti-money laundering law that requires reporting of certain suspicious activity transactions and currency transactions in excess of $10,000 on IRS Form 8300. Dealers should also report transactions that may involve money laundering of funds from illegal activity even if the total of such funds does not meet the $10,000 threshold.

CAN-SPAM Act - A federal law that regulates sending of commercial email messages. Requires that recipients be given an opt-out method which must be honored within 10 business days. Also bans false or misleading header information, prohibits deceptive subject lines, requires commercial email to be identified as an advertisement and requires the sender to include a valid physical postal address.

Car Buyer’s Bill of Rights - Consumer protection laws in California and Minnesota. The California law requires dealers to: give consumers a minimum two-day option to cancel a used car purchase if the cash price is less than $40,000. Both California and Minnesota require the dealer to make disclosures of certain aftermarket items indicating the monthly payment with and without the items. California’s law also requires dealers to provide consumers their credit scores and the range of possible credit scores. In Minnesota, the dealer must give a written disclosure telling the consumer of their right to obtain the names and contact information of all credit bureaus that provided consumer reports to the dealer and lender that were used in evaluating the credit application. Both laws also require the dealer to give the customer a full inspection report and meet other requirements to advertise or sell a used vehicle as “certified.” The California law also caps a dealer’s ability to mark-up lender “buy rates” to consumers and requires other contractual disclosures as well.

CIP - A Customer Identification Program prescribed by the USA PATRIOT Act by which a creditor establishes formal policies and procedures for verifying the identity of its customers. Auto dealers that act as agents for a bank (such as in originating two-party paper) are required to implement the bank’s CIP.

Class Action - A legal process by which one person sues a defendant on behalf of a class of similarly-situated persons for damages or other relief for all persons included within the class. A class action requires the class members to have received similar treatment from the defendant and be too numerous to include in an individual lawsuit. Class arbitration is a similar process before an arbitrator or panel of arbitrators instead of a judge. The federal Class Action Fairness Act makes certain in-state disputes more likely to be heard in state courts and requires greater judicial scrutiny of settlements and attorneys’ fees awards.

Consumer Report - A credit report or any communication of information from a credit bureau bearing on a consumer’s creditworthiness, credit standing, credit capacity or other characteristics that is expected to be used or collected in whole or in part for determining a consumer’s eligibility for credit, insurance, or other purposes. A dealer can only access a consumer report if it has a “permissible purpose” under the FCRA.

Cosigner - A person who agrees to be secondarily liable on a loan or credit sale if the borrower or co-borrower does not pay. Typically, the cosigner does not have an interest in the vehicle but is liable on the credit agreement. Cosigners need to get special notices under federal and state law both at the time of cosigning and when the primary obligors default. Also called a “guarantor.”

Credit Sale - A transaction in which a seller agrees to sell an item to a consumer for a set or variable price in a fixed number of installment payments over time, instead of requiring cash payment in full up front. Most auto financing is done by a dealer making credit sales to consumers and then assigning its rights to the installment payments to a bank or financial institution. Also called closed-end credit. Sometimes referred to as a three-party credit transaction (dealer, financial institution, and consumer).

E-SIGN Act - (Electronic Signatures in Global and National Commerce Act) – A federal law that permits electronic signatures to substitute for paper signatures in most consumer and commercial transactions. Enables electronic contracting of motor vehicle retail installment sales. Requires the affirmative consent of the consumer to conduct business electronically in consumer transactions.

ECOA - (Equal Credit Opportunity Act) -- Along with the Federal Reserve Board’s Regulation B, prohibits discrimination in lending terms. ECOA also requires creditors to send decisions, adverse action notices and other communications to consumers within 30 days after receiving a completed credit application and notices of information needed to make an application complete within 30 days as well.

FACT Act of 2003 - (Fair and Accurate Credit Transactions Act) – A federal law that amended the FCRA (see below) and provided consumers with identity theft protections. Through the FACT Act amendments, the FCRA now restricts information sharing, provides new identity theft protections, gives consumer rights to access their credit reports once per year for free, expands consumer rights to dispute items in credit files, and requires detailed consumer notices on credit reports and applications, among other things.

FCRA - (Fair Credit Reporting Act) – Governs the permissible uses of credit reports and requires disclosures to consumers when a credit report is used in making a credit decision. Also requires giving consumers opt-out rights with respect to sharing of consumer report information with affiliates or sharing any information with affiliates for marketing purposes (the latter provision to take effect October 1, 2008). Contains requirements for credit bureaus and reporting creditors to make consumer reports more accurate and to correct inaccurate reporting.

FTC Safeguards Rule - The Federal Trade Commission’s rule pursuant to GLB that requires dealers to develop and implement formal Information Security Programs. The rule requires a dealer to designate a named individual as responsible for implementing the Program.

FTC Telemarketing Sales Rule - An FTC regulation requiring disclosures in telemarketing campaigns and prohibiting deceptive or abusive telemarketing acts or practices. The rule also sets out a series of disclosures for product telemarketing. The rule prohibits telemarketing to persons whose phone numbers are on the National Do Not Call Registry unless an exception applies, such as the telemarketer having a prior business relationship with the consumer. The rule also enables consumers to opt-out of telemarketing from individual companies and prohibits certain patterns of conduct in conducting telemarketing. States also have do-not-call lists that must be used to scrub telemarketing lists as well.

GLB - (Gramm-Leach-Bliley Act) – A federal law requiring auto dealers and other “financial institutions” to protect the privacy of customers’ nonpublic personal information and not share such information with third parties unless the customer is given the opportunity to “opt-out” of the sharing. GLB also requires giving a consumer a privacy notice describing the dealer’s information collection and sharing practices when a consumer first provides personal information and annually thereafter if the person is still a credit customer. The Federal Trade Commission regulates auto dealers’ compliance with GLB.

Junk Fax Prevention Act of 2005 - A federal law that prohibits sending unsolicited facsimile advertisements to persons unless the person consents in writing to receive fax advertisements or the sender has a “prior business relationship” with the recipient and the recipient has not opted-out of receiving faxes from the sender. Senders of unsolicited faxes must include a clear and conspicuous notice on the first page on how the recipient can opt-out of future faxes from the sender at no cost. Persons who opt-out must be removed from all fax lists within 30 days.

Loan - In contrast to a credit sale, a transaction in which a bank or financial institution directly lends a consumer the money to purchase an item and the consumer agrees to pay the loan back with interest over time. Sometimes referred to as a two-party credit transaction (bank and consumer). Dealers often act as agents for banks in originating two party loans for consumers.

Metadata - Metadata Literally, data behind data in electronic documents such as emails and Microsoft Office documents. Properties of electronic documents can reveal who created the document, when it was created and who it was distributed to, plus changes made along the way. Additional metadata can be gleaned from computer systems analysis. Metadata can be valuable in litigation and is the reason why most electronic discovery requests seek the documents to be produced in their original, as opposed to a printed or pdf, or.tif format.

National Do Not Call Registry - A consumer-initiated list of telephone numbers maintained by the FTC that cannot receive telemarketing calls except where a prior business relationship exists during the preceding 18 months (3 months for inquiries only). States also have do-not-call registries and these must also be used to refine prospect lists before a telemarketing campaign begins.

Negative Equity - A term used to describe a consumer whose trade-in vehicle is worth less than their credit pay-off balance on the car. Also called “upside down” or “under water.” Negative equity can be paid off and financed in a vehicle purchase transaction. However, TILA requires negative equity to be disclosed either by reducing the consumer’s down payment (but not below $0) or itemizing it separately in the Amount Financed list of Amounts Paid to Third Parties. Negative equity should never be added to increase the cash price of the vehicle.

Permissible Purpose - According to the FCRA, a dealer must have a “permissible purpose” to pull a customer’s credit report. A customer’s written consent is always the best “permissible purpose.” However, the FCRA lists several other conditions for permissible purpose without the customer’s written consent. In general, a dealer can pull the credit report only if it is clear to both the consumer and the dealer that the consumer is initiating the purchase or lease of a vehicle and the dealer has a legitimate business need for the credit report such as to arrange financing requested by the consumer. However, a customer merely walking into a showroom does not constitute a permissible purpose to pull the customer’s credit report. Absent the customer’s written consent, you never have a permissible purpose to pull a consumer report for negotiation purposes or for a customer paying cash.

Predatory Lending Laws - Laws that prohibit discrimination and abusive credit terms and practices in lending that are principally used to protect minority groups and women. These laws also prohibit onerous terms and penalties in finance agreements and generally enable private consumer lawsuits seeking damages, attorneys’ fees and penalties.

Preemption - A doctrine by which certain federal laws, such as the Federal Arbitration Act, TILA, ECOA and FCRA, pre-empt and overrule conflicting state laws on the same subject. Also, a doctrine created by courts construing federal banking law for federally regulated financial institutions to do business uniformly in all states by pre-empting certain state laws. The U.S. Supreme Court ruled that federal banking preemption applies to operating subsidiaries of federally regulated banking entities as well as to the banks themselves.

Red Flags Rule - Regulations issued pursuant to the FACT Act requiring auto dealers to adopt a written Identity Theft Protection Program. The Program must identify specific red flags, these being patterns, practices or activity that indicate the possibility of identity theft. The program must also state processes to detect and evaluate these red flags in connection with individual customer transactions, and it must provide for procedures to respond to red flags you detect in an appropriate way to prevent identity theft. You must update the program periodically to reflect changes in customer ID theft risks from your experiences and other sources of relevant information about identity theft practices. The Red Flag Rule identifies 26 specific red flags to consider. You should consider any others from your experiences, or those of other dealers, with identity thieves. The initial program must be approved by the Board of Directors, and a senior management officer must be placed in charge of the Program. Persons performing functions under the program must submit annual reports of their experiences that the program coordinator must evaluate to refine the program. Compliance with the Red Flags rule is mandatory by November 1, 2008.

SDN List - (Specially Designated Nationals and Blocked Persons) – OFAC’s list, containing persons, countries and organizations such as known terrorists with which U.S. entities are prohibited from doing business. Every customer—cash and credit--must be checked against the SDN List at the time the customer relationship is established. If there is a match, the institution must call OFAC and cannot do business with the individual or entity. OFAC updates the SDN List several times a month and publishes it on its website.

Security Freeze - A consumer’s right to lock down their credit file, including their credit report or credit score, from being accessed by new creditors. This right is now available to all consumers. A consumer can initiate a security freeze by sending a certified letter to each credit bureau where the consumer wants his or her file frozen. A freeze can be temporarily “thawed” in less than 15 minutes by the consumer calling the credit bureau and using a special PIN provided by the credit bureau when the file was first frozen. Security freezes do not prevent the consumer’s credit file from being used by the credit bureau in generating prescreening lists.

The USA PATRIOT Act - A post-9/11 law requiring, among other things, that creditors verify the identity of every customer at the time of establishing an account.

TILA - (Truth in Lending Act) and Federal Regulations M and Z – Provide for mandatory consumer disclosures in credit and leasing transactions and the advertising of credit. Regulation M covers consumer leasing transactions. Regulation Z covers credit sales, open-end credit, and loans.

UCC - The Uniform Commercial Code adopted in all 50 states. It contains rules on sales practices, express and implied warranties, financial instruments and the use of goods to secure loans or credit transactions, among other things.

UDAPs - (Unfair and Deceptive Acts and Practices laws) – Includes FTC Act Section 5 and similar state laws used frequently by the FTC and state Attorneys General to correct and obtain damages for consumer abuses by automobile dealers and other entities. Penalties under FTC Act Section 5 can total $11,000 per violation, per day. The FTC takes the position that inadequate data security practices are a violation of Section 5.

UETA - (Uniform Electronic Transactions Act) – Adopted in all 50 states and the District of Columbia, this law provides a framework for conducting transactions electronically instead of by paper. Complements the federal E-SIGN Act.

Used Car Rule - An FTC Rule requiring dealers to prominently and conspicuously post a Buyer’s Guide on all used cars prior to their being offered for sale. The Buyer’s Guide must disclose detailed warranty information and contain other consumer disclosures. If the sale negotiations are conducted in Spanish, a Spanish version of the Buyer’s Guide must be posted on the car. A final Buyer’s Guide must be given at the sale reflecting any changes, and it operates as an amendment to the sales contract. Another FTC rule, the FTC’s Rule on Pre-Sale Availability of Written Warranty Terms, requires warranties to be displayed in close proximity to the vehicle or be made available to consumers upon request before they buy. The Used Car Rule does not apply in Maine or Wisconsin where similar state regulations require posted disclosures on used vehicles.