When the election results were known the morning of November 9, 2016, one thing was certain: Change is coming.
President Donald Trump’s administration made clear during its campaign and after the election that burdensome regulations had adversely effected business growth and jobs creation.
An expressed priority of the new administration is to reduce regulation deemed to interfere with business and economic growth.
In the automotive industry, most of the attention has been focused on the future of the Consumer Financial Protection Bureau (CFPB).
We are often asked, in light of these developments, what franchised dealers may expect as a result of this proposed vigor to reduce regulations, as well as possible changes at the CFPB.
We cannot predict the future, or we would have a different business model. Tea-leaf reading, however, is in our nature.
So what do the tea leaves say? Will any changes to the CFPB directly affect franchised auto dealers?
For franchised dealers, the new administration’s focus on reduction of federal regulations will have little actual effect on operations. Here’s why.
Most of the discussion by industry experts, trade associations, and journalists focused on what President-elect Trump will do with the CFPB.
Will there be a repeal of Dodd-Frank? An amendment to it? Will the CFPB be scrapped? The directorship changed to a board? Richard Cordray terminated?
No one knows the answers to these questions. The real question is if any of these possible changes will have an impact on franchised dealers?
Our answer is no.
Absent a change to Dodd-Frank that would place franchised dealers under the CFPB’s regulatory umbrella, which we can safely say will not happen, any changes to the CFPB structure and/or leadership will have little to no effect on franchised dealership compliance obligations.
After it formally began operations in 2011, the CFPB has not brought a single case or investigation against a franchised auto dealer. The agency passed no rule or regulation, with the exception of the pending arbitration rule, that directly affects the way dealership business is conducted.
With no jurisdiction over franchised dealers, the CFPB’s only impact was its attempt to change dealers’ business practices through an assault on indirect auto finance companies. Although not imposed at the dealership level, the CFPB sought to change dealer F&I practices through market-tipping enforcement actions against some of the largest indirect automotive finance companies.
The CFPB’s use of disparate impact received a lot of press, resulted in significant consent decrees for consumer redress and fines, and altered dealer compensation with some finance companies.
The net effect of these actions at the dealer level? Minimal.
Actions by the CFPB have failed to tip the market as dealers continue to have numerous competitive sources to obtain vehicle financing for consumers.
In light of the CFPB disparate impact cases brought against finance companies, franchised dealers either chose to adopt a fair lending program documenting deviations from an established standard markup rate, or did nothing, because the majority were quite rightly incensed that they were being unjustifiably accused of wrongdoing.
Absent agency focus on disparate impact, there is no other aspect of the CFPB agenda that directly touched franchised dealership operations. The CFPB’s actual effect on franchised dealers, however, has been increased focus on compliance with consumer regulations by the public, state, and other federal regulatory agencies, and plaintiffs’ lawyers.
In contrast to the CFPB, numerous consumer regulatory actions have been brought against franchised dealers by the Federal Trade Commission (FTC), state attorneys general, the Department of Consumer Affairs, and departments of motor vehicles, to name a few.
In addition, dealers have seen an increase in private causes of action premised on regulatory requirements. Consumer financial compliance has been at the top of the list for regulators outside of the CFPB, and will continue to be a high priority moving forward.
The fact is, American consumers have come to demand transparency. Whether the CFPB is here to stay or gone tomorrow, the cat is out of the bag.
Consumers want financial compliance, want to know what they are buying, and what it costs. No politician is going to stand up and vote to remove consumer financial protections that have been in effect for decades.
In 2017, dealers will still need to comply with the Equal Credit Opportunity Act (ECOA), Consumer Leasing Act (CLA), the Truth in Lending Act (TILA), the Office of Foreign Asset Control (OFAC), the Gramm-Leach-Bliley Act (GLBA), Unfair or Deceptive Acts or Practices (UDAP), the Fair Credit Report Act (FCRA), Used Car Rule, and various state laws and regulations.
Compliance was the case pre-CFPB, and will be the case in a post—or modified—CFPB era. The discussion around compliance may change from time to time, but a documented compliance program at a dealership fends off regulatory inquiries, keeps a mistake a mistake, and allows a dealership to affirmatively defend actions whether brought by the federal government, state agency, or private attorney.
Currently, dealerships are expected to have a documented compliance program in place. This expectation did not go anywhere after President Trump was sworn in.
The brakes may be applied to the CFPB’s use of its highly questionable analysis in disparate impact cases, but disparate impact in auto finance is still an issue to treat compliantly.
Remember, the CFPB created no new regulations or rules for auto dealers in its short tenure. So when it comes to your compliance program, stay the course. Regardless of the administration in power, consumer financial compliance makes good sense for your customers, and great sense for your dealership.
David R. Missimer, [email protected], is general counsel for Automotive Compliance Consultants Inc. He spent 28 years in private practice as a litigator representing lenders, auto dealers, and numerous other entities and individuals. He has worked with Dealership Compliance issues since 2003 as co-founder of ACC. He is a member of the National Association of Dealer Counsel, American Financial Services Association, and National Automotive Finance Association.