Much of the compliance news flowing out of 2014, in particular regarding dealerships’ consumer finance practices, can offer insightful perspective for F&I and other dealership operations in 2015.
At the beginning of 2014, the Consumer Financial Protection Bureau (CFPB) made headlines with a $98 million consent decree with Ally Financial. This news underscored that the CFPB’s dislike of dealer reserve was real. The CFPB made good on its promise to use disparate impact as a legal theory to address what the agency perceived to be discriminatory effects of dealer reserve.
In January 2014, the Federal Trade Commission (FTC) announced action against 10 auto dealerships for deceptive advertising. The FTC’s enforcement efforts continued throughout the year with actions against other dealerships for advertising violations, including a $5.5 million settlement with an auto finance company, and enforcement actions for failing to display Buyers Guides on used vehicles offered for sale.
This past September, the CFPB announced its Auto Finance Larger Participant Rule. The rule would allow CFPB to supervise nonbank auto finance companies that make, acquire, or refinance 10,000 or more loans or leases annually. If approved, the rule will place 90% of all nonbank auto finance under CFPB supervision. Expect a final rule sometime in 2015.
The Department of Justice, state attorneys general, and plaintiffs’ lawyers made noise in 2014 too, including issuing subpoenas to auto finance companies, ending the year with announcements concerning investigations into Toyota Financial and Honda. The attorneys general of Illinois and New York were the first to use new powers under the Dodd-Frank Wall Street Reform and Consumer Protection Act, with New York taking action against an auto finance company, and issuing subpoenas to auto finance and other entities. Plaintiffs’ lawyers discovered the Holy Grail in 2014 with Telephone Consumer Protection Act class actions that reaped huge settlements.
For 2015, absent a ruling from the Supreme Court on disparate impact in lending discrimination cases, expect the CFPB to continue pursuing auto finance companies. Dealers should expect finance sources to demand verifiable lending compliance from them. Many dealers have already received warnings from finance sources concerning disparate impact issues in the dealer’s portfolio. This practice will continue, with some finance sources declining to do business with dealerships that have no compliance program in place.
Fair lending, privacy, data breaches, consumer arbitration, and employee rights are expected to be hot buttons for federal and state regulators.
Your defense is to institute compliance practices and procedures that comprise more than running a Red Flags check and issuing a risk-based pricing notice. To combat the CFPB’s agenda, maintain your current business model, and be able to respond properly to finance sources that claim your dealership discriminates, you need real compliance management.
It is increasingly apparent that dealerships now require a compliance program and procedures to document legitimate business reasons for rate deviation. Software solutions alone will not suffice. A dealership deserves more thorough and expert compliance protection—and a compliance methodology that oversees and protects the entire dealership, and not just fair lending.
David R. Missimer, [email protected], is General Counsel for Automotive Compliance Consultants Inc. (www.compliantnow.com). 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.