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though, is that, perhaps, only a
small percentage of customers
— those who actually made every payment on time — would
ultimately end up paying the
disclosed blended rate. If you
assume that a signifcant number of subprime customers will
be late now and again, then the
lower, disclosed rate could be
argued to be illusory, perhaps
even fraudulent, or a violation
of state UDAP laws.
Is there a way to f x these
problems and save a program
that would so obviously beneft
consumers? Perhaps, but the f x
would not be an easy one.
One approach would be to
change TILA and Reg. Z to specifcally provide for these programs. Perhaps the consumer
could be given two disclosure
statements — one showing
the application of the original
APR and the other disclosing
the blended APR. If the regulator could be persuaded that the
creditor was willing to make
prominent disclosures alerting
the customer that the disclosed
rates would apply only to perfect payment records, the regulator just might back a GRIP.
Sadly, amendments like these
take a long time to put in place.
Te potential issues with
such a program are not limited
to the federal disclosure rules
and potential state and federal
UDAP claims. Tere might be
other state law problems, as
well.
Your state might prohibit
varying rates or treat the failure to step down the rate as a
prohibited late or delinquency
charge under state law. Te rate
reduction might be deemed to
be a "ref nancing" under state
law requiring certain disclosures.
So perhaps you decide that
the benefts outweigh the risks.
Before you implement it, you
need to have a good long talk
with your friendly compliance
lawyer and make sure you've
done your homework before you
get a GRIP.
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