Tag Archive | "CFPB"

CFPB Takes Aim at F&I Products


Via F&I Showroom

Less than two months after the Consumer Financial Protection Bureau (CFPB) confirmed it was watching policies related to dealer participation by issuing guidance to indirect auto lenders, the bureau appears to be targeting the sale of extended warranties and other F&I products.

Reports suggest that the CFPB has issued subpoenas to U.S. auto lenders related to the sale of products such as extended-service contracts and other add-ons. Service Contract Industry Council (SCIC) Executive Director and General Counsel Timothy J. Meenan said the move is “possible and probable” based on media reports, but he has yet to receive confirmation.

“It appears that they are looking at lending practices for sales of automobiles, and also looking at issues involving add-on products,” Meenan said.

In March, the CFPB said it would hold lenders that offer auto loans through dealerships responsible for unlawful, discriminatory pricing. It alleged that bank policies which allow auto dealers to mark up the interest rates on retail installment sale transactions in exchange for services rendered have caused a disparate impact, meaning that members of minority groups pay higher rates. Several banking institutions, including Ally Financial, received letters stating that they could face lawsuits under the Equal Credit Opportunity Act (ECOA).

Groups such as the National Automobile Dealers Association (NADA) and the National Association of Minority Automobile Dealers (NAMAD) have denounced the bureau’s actions, as the CFPB has not revealed how it is conducting its analysis. Using the disparate impact theory, the CFPB has taken the position that violations of the ECOA can be pursued based solely on statistics — meaning a lender can potentially be held responsible for unintentional impacts on minorities.

NADA’s Director of Public Relations, Charles Cyrill, said the organization was not aware of any CFPB action related to F&I add-ons. “We have not received any information about CFPB investigations regarding optional products other than dealer reserve,” he explained.

The CFPB has not publicly confirmed the targeting of F&I products, but a spokesman did not deny recent reports.

“When I look at what the CFPB’s been doing with mortgages and with, say, credit card companies, they’ve gone after things that are potentially misleading,” Meenan said. He explained that while credit card companies have been known to sign up customers for add-on products without their knowledge or understanding, car buyers must sign a contract for F&I add-ons that says, “Yes, I want this.”

Last year, the CFPB reached settlements with credit card issuers such as Capital One Bank, which agreed to refund approximately $140 million to 2 million customers, as well as pay a $25 million penalty for the way it marketed add-on products like payment protection.

“I think those kinds of misleading practices don’t really apply to automobile service contracts,” Meenan said. “You can, in the first 45 days, cancel a service contract and get all your money back. And thereafter, you can get the pro rata share back… There are lots of good consumer protections in these products that I think the CFPB will find attractive.”

The CFPB is not the only agency looking at the auto industry. At a panel discussion at George Mason University on May 2, Jon M. Seward, deputy at the U.S. Department of Justice’s Housing and Civil Enforcement Section, said that the DOJ has experienced a shift in referrals of violations from federal bank regulators including the CFPB.

“We’re seeing a lot more referrals involving pricing discrimination allegations in the unsecured consumer lending space; a number of auto-related referrals either involving indirect auto lending or some involving buy-here, pay-here car dealerships,” Seward said in a video.

In December 2012, the department signed a memorandum of understanding with the CFPB aimed at strengthening their coordination in connection with fair lending investigations. That’s why, Meenan says, “We’re not taking anything lightly… We are in a fact-finding mode using local council and others to find out what it is the CFPB is after.”

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Compliance Experts to Dealers: Heed CFPB’s Aggressiveness


Crystal Lake, Ill. — Automotive Compliance Consultants, a group of automotive retail compliance experts, cautions auto dealers to heed the aggressiveness of the Consumer Financial Protection Bureau (CFPB) in its indirect, but very real review of automobile dealership financing practices.

“Whether dealers like it or not, the CFPB is looking at and analyzing all financial practices and compliance with financial regulations by indirectly looking into those entities under CFPB’s jurisdiction that transact business with the retail automotive industry,” said David Missimer, general counsel for Automotive Compliance Consultants.

Terry Dortch, the firm’s CEO, who last week participated in the American Financial Services Association’s (AFSA) 30th Independents Conference & Exposition in Las Vegas, said Automotive Compliance Consultants joined the AFSA to engage with its members and committees to be at the forefront of an ever-changing financial landscape.

“The CFPB has made recent bold moves that are affecting how auto dealerships finance customers, as it is apparent that auto dealers, though technically not under the CFPB’s umbrella, are being targeted by the CFPB to pressure their lenders to modify their lending practices,” Dortch said.

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Federal Agencies to Coordinate Regulatory Efforts


WASHINGTON — Five federal agencies signed a Memorandum of Understanding that clarified how they coordinate their supervisor activities under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The move was expected, as the Dodd-Frank Act requires that the Consumer Financial Protection Bureau (CFPB) and the other regulators – the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency – coordinate important aspects of their supervision of insured depository institutions with more than $10 billion in assets and their affiliates. Such coordination includes scheduling examinations, conducting simultaneous examinations of covered depository institutions unless an institution requests separate examinations and sharing draft reports of examination for comment, according to F&I and Showroom magazine.

The MOU is intended to establish arrangements for coordination and cooperation between the CFPB and the prudential regulators, minimize unnecessary regulatory burden, avoid unnecessary duplication of effort, and decrease the risk of conflicting supervisory directives.

Under the MOU, the agencies will coordinate examinations and other supervisory activities and share certain material supervisory information concerning: Compliance with federal consumer financial laws and certain other federal laws that regulate consumer financial products and services; consumer compliance risk management programs; activities related to consumer financial products or services; and other related matters that the agencies may mutually agree upon.

These coordination undertakings should lead to greater uniformity and efficiencies in supervision and help to minimize regulatory burden on covered depository institutions.

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Obama Nominates Former Ohio AG to Lead New Bureau


WASHINGTON — President Obama has named former Ohio Attorney General Richard Cordray as his nomination for director of the new Consumer Financial Protection Bureau (CFPB), which was created by the passage of the Dodd Frank Act last year. The nomination will require Senate confirmation, which, by all account, will be a problem.

Cordray previously served as Ohio’s treasurer and as head of the CFPB’s enforcement division for the last six months under current interim director and agency architect Elizabeth Warren.

During the announcement, President Obama discussed Dodd-Frank’s provisions, which included making taxpayer-funded bailouts illegal, Wall Street reforms and stronger consumer protection rules.

“Already, the agency is starting to do a whole bunch of things that are going to be important for consumers — making sure loan contracts and credit card terms are simpler and written in plain English,” the president said. “Already, thanks to the leadership of the bureau, we’re seeing men and women in uniform who are getting more protections against fraud and deception when it comes to financial practices.”

In her White House blog post announcing the nomination, Warren described Cordray as someone that would be a “strong leader” for the CFPB. She added that he is someone with “a proven track record of fighting for families during his time as head of the CFPB enforcement division, as attorney general of Ohio and throughout his career.”

“He was one of the first senior executives I recruited for the agency, and his hard work and deep commitment make it clear he can make many important contributions in leading it,” Warren continued in her blog post. “Rich is smart, he is tough and he will make a stellar director. I am very pleased for him and very pleased for the CFPB.”

In this month’s Legal column, Tom Hudson, partner at the law firm of Hudson Cook LLP, talked about the many challenges the CFPB is facing as it gets set to assume regulatory authority on July 21. The Republican-controlled Senate has already said it will block President Obama’s nomination. Republican lawmakers also have introduced several proposals to reduce the bureau’s power and independence.

Because of efforts put forth by the National Automobile Dealers Association, dealers were largely excluded from the CFPB’s oversight. However, the Dodd-Frank Act granted the FTC new rulemaking powers as it pertains to dealers. The agency is now hosting a series of roundtables to determine where it should focus its attention when it assumes its new powers. The next roundtable is scheduled for Aug. 2-3 at St. Mary’s University School of Law.

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