Is the CFPB Tide Turning?
Will recent changes in the political climate and court decisions trim the CFPB’s sails?
One thing many in the auto industry were hoping for was a change in the political landscape. Most dealers we have talked to were very confident bill HR 5403, Reforming CFPB Indirect Auto Financing Guidance Act, would pass as it had bi-partisan support.
This bill’s intention was to nullify certain guidance of the Consumer Financial Protection Bureau (CFPB) and to provide requirements for guidance issued by the Bureau regarding indirect auto lending.
With the November elections over, and Republicans soon to be in control of both Houses, that sentiment has not changed. Although the bill sits in committee, and GovTrack.us gives the bill a 6% chance of enactment, dealers are encouraged by the recent American Financial Services Association study on auto lending that blasts CFPB methodology.
If you are counting on a Republican-led Congress to cure all the things you deem wrong with the current compliance environment, you probably should not hold your breath. During its short history, the CFPB has not shown much deference to Congress.
The president who has veto power created the CFPB, likes the CFPB, and has publically stated that dealers include expensive add-ons that catch consumers by surprise. He has previously indicated he would veto legislation to replace the current command structure of the CFPB.
However, in November a District of Columbia district court struck down the Housing and Urban Development (HUD) disparate impact rule, which is related to the CFPA issue. The judge ruled, “This is yet another example of an administrative agency trying desperately to write into law that which congress never intended to sanction…”
The Supreme Court is scheduled to hear a FHA disparate impact case next term and weigh in on the use of disparate impact when not specifically provided for in statute.
So is the tide turning? Perhaps. Until Congress and/or the Supreme Court act, CFPB actions will continue to affect auto dealer practices significantly. Do not expect the Bureau to slow down its supervisory and enforcement efforts for Congress and the Supreme Court.
The CFPB clarified to auto finance sources that any continuation of markup as a compensation model for dealer-generated financing would require a significant compliance management system that includes dealer education and training, and a strong fair-lending compliance management system.
We advise dealers to continue to establish controls and procedures to respond to inquiries and accusations of disparate impact.
David R. Missimer is General Counsel for Automotive Compliance Consultants Inc. He spent 28 years in private practice as a seasoned litigator and trial lawyer. He joined Automotive Compliance Consultants in 2003. He is a member of American Financial Services Association and National Automotive Finance Association as General Counsel of Automotive Compliance Consultants Inc. For information, contact Missimer at firstname.lastname@example.org or visit www.compliantnow.com.