Tag Archive | "CFPB"

House to Vote on CFPB-Altering Bill This Week


WASHINGTON, D.C. — The U.S. House of Representatives is expected to vote this week on a bill that would rescind the Consumers Financial Protection Bureau’s guidance on dealer participation and add a few more steps in to its guidance-writing activities.

The House is expected to vote on H.R. 1737, which the House Financial Services Committee passed this past July by a 47-10 vote, either on Wednesday or Thursday. It was introduced this past April by Rep. Frank Guinta (R-N.H.) and Ed Perlmutter (D-Colo.).

Aside from repealing the bureau’s March 2013 guidance on dealer participation, the legislation would require that the bureau provide a public comment period, consult with other agencies that share jurisdiction over the indirect auto finance market and disclose its testing methodologies before issuing any further guidance. The bill has received strong support from the National Automobile Dealers Association, which called on members this week to contact their local Congressperson to urge them to vote “Yes” on the bill.

“H.R. 1737 is a good-government bill that says to the CFPB, stay in your lane, make sure you understand the market, listen to the public, listen to the stakeholders — all of them — understand the implications of what you’re doing, understand what your actions do to consumers, and understand what they do to minority-owned businesses, women-owned businesses, and, in fact, all small business,” Andrew Koblenz, the NADA’s executive vice president of legal and regulatory affairs and general counsel, told F&I and Showroom this past September.

“And be transparent,” added Koblenz, who served as a keynote speaker at the magazine’s annual conference in September. “Tell us what you’re basing your analysis on, your conclusions on, and, to the extent you can, what your data shows. And coordinate with other agencies that have share responsibilities in this marketplace …”

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Reynolds Expands Into Mortgage Banking With IDS Acquisition


DAYTON, Ohio — Reynolds and Reynolds, a dealership software, documents, and compliance services company, has acquired IDS, a provider of mortgage documents and compliance services.

The Salt Lake City-based IDS, or International Document Services, will operate as a standalone division of Reynolds and Reynolds and retain its name and brand in the market.

“We look forward to continuing to serve our IDS customers with the expertise and service they’ve come to expect from us,” Mark Mackey, vice president and general manager of IDS. “Now we can do so with the strengths and advantages of a much larger company behind our brand.”

New regulatory requirements from the Consumer Financial Protection Bureau impacting  the mortgage industry went into effect earlier this month. Mackey indicated that IDS is ready to implement services for its customers in response to the new regulations.

“The mortgage industry — much like automotive — is facing the dual challenge of increased pressure from regulators and the changed expectations from consumers who are looking for a more rewarding and engaging experience when handling the documents necessary to purchase a vehicle or home,” said Robert Burnett, senior vice president of business development at Reynolds and Reynolds. “IDS has developed a strong reputation and product line in serving the mortgage banking industry and their expertise is well recognized.”

Reynolds and Reynolds provides software, documents and services to dealerships. One of its offerings is the docuPAD, a solution designed to help dealerships meet regulatory and compliance requirements, a well as and streamline F&I document processing and improve customer experience.

Reynolds officials said the company recently completed a two-year pilot program of the docuPAD in the mortage industry, a trial period that resulted in the software being rebuilt for use by mortage lenders.

The docuPAD is a large, flat, touchscreen dealership use to complete a vehicle sale or lease. It can be used to present content and documents like personalized product menus and video presentations. The docuPAD can also be used for e-signature capture for contracts, disclosure documents and compliance verification.

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NADA Files Second Request for Internal CFPB Documents


MCLEAN, Va. — The National Automobile Dealers Association (NADA) filed a Freedom of Information Act (FOIA) request today, asking the Consumer Financial Protection Bureau (CFPB) to release internal documents acknowledging that the agency intended to regulate the auto finance market through enforcement action, and eschewed evidence that its methods for estimating disparate impact were deeply flawed.

This is the second time in less than three months that the NADA has requested internal CFPB documents leaked to American Banker. A request filed in July asked that the bureau turn over documents that allegedly stated the CFPB’s “goal” in the auto lending arena was to significantly limit dealer discretion, despite the fact that the regulator is specifically prohibited from regulating auto dealers under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB denied the NADA’s request three days later.

On Sept. 17 and Sept. 24, American Banker published articles that made numerous references to internal CFPB documents. Those documents supposedly show that the CFPB based its understanding of vehicle financing on a now-discredited study conducted by the Center for Responsible Lending. The bureau also allegedly acknowledged in the documents that the proxy methodology it uses to determine the presence of discrimination in auto lending is flawed, yet it continues to use the results to reach large settlements with finance companies like Honda Finance Corporation and Fifth Third Bank.

“These documents demonstrate a lack of transparency and accountability that should be deeply troubling to anyone concerned about how significantly a regulator can influence a market that affects millions of consumers,” said NADA President Peter Welch in a statement on the NADA’s website. “Consumers benefit tremendously from the discounts they get from dealers, and they have every right to demand that their voices be included in — not willfully excluded from — the debate about how to regulate the auto finance market.”

Earlier this month, during the bureau’s semi-annual report to Congress, CFPB Director Richard Cordray was challenged by lawmakers over the methods the bureau is using to bring enforcement actions against auto lenders. The regulator noted that “‘Accurate’ is in the eye of the beholder,” and that the CFPB is working to find the most reliable method possible to determine the presence of discrimination in auto lending.

However, Cordray was not forthcoming about the internal documents cited by American Banker, telling members of Congress he was only “roughly familiar” with the memos.

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CFPB Considering Ban on Arbitration Clauses


WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) announced it is considering proposing rules that would ban arbitration clauses in consumer financial services contracts, less than five months after 50 members of Congress urged the bureau to eliminate such clauses.

Describing arbitration clauses as a “free pass” to block consumers from suing in groups to obtain relief, the CFPB said the proposals under consideration would give consumers “their day in court and deter companies from wrongdoings.”

“Consumers should not be asked to sign away their legal rights when they open a bank account or credit card,” said CFPB Director Richard Cordray in a statement. “Companies are using the arbitration clause as a free pass to sidestep the courts and avoid accountability for wrongdoing. The proposals under consideration would ban arbitration clauses that block group lawsuits so that consumers can take companies to court to seek the relief they deserve.”

In its press release announcing its intentions, the bureau cited results of a three-year studyit conducted on pre-dispute arbitration clauses. Released this past March, results showed, among other things, that more than 75% of consumers surveyed did not know whether they were subject to an arbitration clause in their agreements with their financial services providers. The report also concluded that it is common for such clauses to be invoked to block class action lawsuits.

The study fueled more than 50 members of Congress, led by U.S. Sen. Al Franken (D-Minn.) and Rep. Hank Johnson (D-Ga.), to issue a letter to the bureau this past May. It urged the regulator to eliminate arbitration clauses in consumer financial contracts.

“In total, the study conducted by the CFPB at Congress’ request roundly confirms that individuals unknowingly sign away their rights through forced arbitration agreements, which do not reduce consumer costs for financial service,” the letter read, in part. “Moreover, forced arbitration shields corporations from liability for abusive, anti-consumer practices, encouraging even more unscrupulous business conduct at the expense of individuals and law-abiding businesses.

“Based on this substantial bedrock of evidence, we urge the CFPB to move forward quickly to use its authority under the Dodd-Frank Act to issue strong rules to prohibit the use of forced arbitration clauses in financial contracts and give consumers a meaningful choice after disputes arise.”

But not everyone took the study’s findings at face value. In April, Tom Hudson, F&I and Showroom’s legal columnist and Hudson Cook LLP partner, criticized the CFPB’s report for its “gaping holes” — such as failing to address the growing consumer-friendliness of arbitration clauses.

“In fact, it isn’t unusual to see clauses that provide for the payment by the creditor of some or all the costs of arbitration,” Hudson wrote. “Creditors also frequently call attention to the presence of an arbitration agreement by using large type, separately boxing the clause or having it separately signed or initiated. The study offers no insight on whether these best practices might change any of its conclusions.

“There is much to dislike about the CFPB’s work on arbitration,” Hudson added. “You’d think arbitration must have some things to recommend it, since Congress passed the Federal Arbitration Act and nearly all states have enacted laws permitting arbitration. But the bureau seems determined not to see any good in the process.”

The American Financial Services Association also took issue with the bureau’s study and proposals, saying in a statement issued to F&I and Showroom that the bureau has not provided any meaningful link beween arbitration and class action lawsuits. It also noted that academic studies have shown that arbitration cases actually produce more in the way of settlements than class action lawsuits.

“As the CFPB study indirectly points out, class action attorneys are the real winners, raking in excess of $424 million in fees awarded in settlements during the period studied,” the statement read. “The bureau that is entrusted to protect consumers is again making it policy to deprive them of that very protection. In essence, the rules that the bureau is proposing would deprive consumers of a low-cost, lawyer-free dispute resolution system and replace it with an expensive, lengthy, and complex judicial process.”

Included in the bureau’s announcement was an outline of the proposals under consideration. They will be reviewed by a panel of “small industry stakeholders” as the bureau’s first step in its potential rulemaking process. The proposals include a complete elimination of arbitration clauses that block class action lawsuits. The ban would apply to credit cards, checking and deposit accounts, prepaid cards, money transfer services, certain auto loans, auto title loans, small dollar or payday loans, private student loans, and installment loans.

Creditors would also have to say explicitly that arbitration clauses found in their agreements do not apply to cases filed as class actions unless and until the class certification is denied by the court or the class claims are dismissed in court. The bureau also wants to require companies that choose to use arbitration clauses for individual disputes to submit to the CFPB the arbitration claims filed and awards issued.

“This will allow the bureau to monitor consumer finance arbitrations to ensure that the process is fair for consumers,” read the CFPB’s press release, which noted that the bureau will seek input from the public, consumer groups, industry and other stakeholders before continuing with its rulemaking process. “The bureau is also considering publishing the claims and awards on its website so the public can monitor them.”

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CFPB Accused of Using ‘Junk Science’ to Regulate Auto Lending


WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB)’s Richard Cordray was met with hostility Tuesday as House Financial Services Committee Chairman Jeb Hensarling (R-Texas) attacked the “junk science” he said the bureau is using to impose regulations on indirect auto lending. The hearing occurred a day before the committee passed two bills aimed at reforming the bureau.

The CFPB has been pressuring auto lenders — most recently Fifth Third Bank — to cap the amount their dealer partners can mark up the interest rate on retail installment sales contracts as compensation for arranging a car buyer’s financing. The bureau alleges such practices result in minority car buyers paying higher rates for auto loans. But during the CFPB’s semi-annual report to Congress Tuesday, lawmakers repeatedly pointed to studies that show the CFPB’s method of determining the presence of discrimination in auto lending has high error rates.

Earlier this month, American Banker reported that internal CFPB documents acquired by the news source — including a memo from assistant director of the bureau’s Office of Fair Lending, Patrice Ficklin — indicate that bureau officials are aware that the agency’s methodology overestimates disparities.

“I believe I am roughly familiar with various memos I have seen,” Cordray said when asked about Ficklin’s memo during Tuesday’s hearing.

The director went on to say that “‘Accurate’ is in the eye of the beholder,” and that the regulator is working to find the most reliable method possible. Those methods, however, do not include taking the creditworthiness of car buyers into account.

“I don’t think it’s fair to say that credit scores can explain the disparities,” Cordray told Rep. Hensarling.

In its joint enforcement action with the Department of Justice Monday, the CFPB claimed that Fifth Third Bank’s dealer markup policy resulted in African American and Hispanic car buyers paying, on average, $200 more for car loans than similarly situated Caucasian customers.

“The CFPB have done some good things, but this business with the auto dealers is a bad thing,” said Rep. David Scott (D-Ga.) at Tuesday’s hearing. “… You based that on a report that was shamefully flawed, it was inaccurate, and to tell you the truth, it was downright insulting to African Americans because you just assumed our last name was Johnson or Williams or Robinson or maybe even Scott.”

The hearing preceded the House Financial Services Committee’s approval of two bills, H.R. 957 and H.R. 1266, that aim to restructure the CFPB to provide more transparency and oversight.

Sponsored by Rep. Steve Stivers (R-Ohio), H.R. 957 would create an independent inspector general for the bureau. That individual would be nominated by the president and confirmed by the senate. It passed the committee by a 56-3 vote.

H.R. 1266, which the committee passed by slimmer 35-24 vote, would remove the CFPB from within the Federal Reserve System and reestablish it as a standalone agency governed by a five-member, bipartisan commission. All powers of the CFPB would remain unchanged.

“Consumers are understandably concerned about our economy. We remain stuck in the worst recovery of the last 70 years,” said Hensarling after the committee’s approval of both bills. “At the same time, they’re concerned that Washington is taking away their choices and raising many of their costs. Our committee has the privilege — and responsibility — to fight for them.”

Testifying before the House Financial Service Committee, Cordray offered auto finance data countering the belief that the bureau’s activities have stunted market growth. In the first half of 2015, he noted, more than 14 million consumers obtained new auto loans, an 8% increase from a year ago.

“For auto loans, this marks a 45% increase since 2011 (when the bureau began operations) and a nine-year high,” he noted, with Rep. Maxine Water backing the bureau’s work during her opening statements at the hearing.

“It is unfortunate, however, that rather than working to encourage good behavior in our markets and support American consumers, opponents on this committee continue to promote measures to eliminate or weaken the bureau,” the lawmaker said. “They perpetuated false narratives of an agency that is unaccountable and lacks transparency despite the record number of times [Cordray has made himself] available to Congress and the many checks and balances contained in Dodd-Frank.

“So what we’re seeing now that the CPFB has celebrated its fourth birthday is that the dire predictions that the Republicans on this committee have made have not come true.”

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NADA Expands Effort to Protect Dealer-Assisted Financing


WASHINGTON, D.C. — The National Automobile Dealers Association (NADA) has launched a new initiative to highlight the true economic value of dealer-assisted financing, including video testimonials and a new website, officials announced this week.

On the new site, users can view testimonials from real consumers who benefited from receiving financing through a dealership.

“Consumers save money every day when they finance through dealerships, but that truth is getting lost in Washington, and that needs to change,” said NADA President Peter Welch. “The stories that we’re highlighting are far from unique. Dealers across the country save consumers money every day, and right now Washington is failing to understand what’s at stake for these consumers and millions more if competition is stifled and dealers are prevented from offering discounts on financing.”

In today’s vehicle finance market, local dealerships are able to shop a customer’s credit application to dozens of lenders all competing for the same loan. As a result, dealers usually offer better interest rates than consumers can find on their own. Furthermore, dealers have the ability to discount their rates to meet or beat a competing credit offer, which results in further savings for consumers.

“Most consumers know that financing is available at their local dealership, but what many don’t know is that dealer-assisted financing usually saves them money,” Welch added. “Many policymakers might not realize this either, but once the savings that comes from dealer discounting is made clear, it will be hard for Washington to turn a blind eye.”

The initiative is part of the NADA’s effort to stop the Consumer Financial Protection Bureau from restricting or eliminating the ability of dealers to provide competitive financing. The regulator has been targeting dealer markups, which it believes cause minorities to pay higher rates. But NADA officials have said the CFPB’s actions will have a negative effect on consumers’ ability to secure affordable auto loans.

Earlier this year, Reps. Frank Guinta (R-N.H.) and Ed Perlmutter (D-Colo.) introduced legislation — H.R. 1737 — that would promote transparency at the CFPB in order to help ensure that its policies do not unintentionally hurt consumers. In July, the legislation, which has 55 Democratic and 71 Republican cosponsors, passed the House Financial Services Committee on a 47-10 vote. The bipartisan vote included the support of 13 of the committee’s 26 Democrats, and House Republicans have indicated that the bill may come to the floor for a vote within the coming weeks.

“Our message is getting out, the facts are on our side, and people are starting to take notice,” Welch said. “But there’s too much at stake for consumers, so we don’t intend to take our foot off the gas until we know that consumer rights and consumer savings are adequately protected.”

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