Tag Archive | "CFPB"

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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EFG Companies and Northwood University Announce F&I Innovator of the Year Competition

DALLAS – EFG Companies, the innovator behind the award-winning Hyundai Assurance program, together with Northwood University, today announced an F&I competition designed to jolt the automotive industry into a higher standard of innovation.

The F&I Innovator of the Year Award, to be held annually, will pit six teams of Northwood’s junior and senior undergraduate automotive marketing and management students against one another to conceptualize and build a new F&I product while earning course credit. A panel of leading dealer principals, EFG executives, and Northwood’s automotive program educators will judge each team’s business case in November. EFG Companies will award the winning team $25,000, and, more importantly, will develop the winning F&I product for the retail automotive marketplace. The company will also return a percentage of the product’s revenues to Northwood University.

The competing teams will be tasked with developing a business case for their new F&I product. Each team will be assigned an F&I director as a mentor to act as a sounding board and guide for one hour per week. The students must research, rationalize and demonstrate the market viability of the new product, and it’s potential to facilitate F&I product sales in franchise dealerships. In addition, the teams will keep video diaries of their progress, challenges, breakthroughs, etc., that will be uploaded to YouTube each week. The competition will run from September 7, 2015 – November 13, 2015.

“Since the 1980’s, F&I products have been developed from a dealer/F&I perspective outward, versus a consumer perspective inward,” said John Pappanastos, President & CEO, EFG Companies. “The increasing compliance and customer retention pressure, and the challenge of appealing to a new and highly informed generation, have predicated the need for the industry to turn innovation on its head. These students represent a fourth of the U.S. population with $200 billion in annual buying power. Our hope is that other F&I providers will follow suit in finding new ways to innovate and drive value for dealers.”

The F&I Innovator of the Year competition will provide Northwood junior and senior students with a deeper understanding of F&I’s importance for dealer profit and customer satisfaction. Currently, dealers generate 35 to 40 percent of their profit from the sale of F&I products. The pace of change in this area of dealership profitability is evolving rapidly due to continuing pressure on lenders, and consequently, on the dealer’s finance reserve from the Consumer Financial Protection Bureau (CFPB).

“This competition exemplifies the Northwood University philosophy of hands-on learning. It provides our students the unique opportunity to see first-hand how entrepreneurism and leadership can impact the industry as a whole,” said Keith Pretty, President, Northwood University. “Through this competition, we are providing students with an up close and personal opportunity to assess the challenges facing dealerships today and create a product or solution that has never been done before, and can viably drive profit margin for a dealer.”

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Consumer Complaints Hit 677,000, CFPB Reports

WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) released a report Tuesday highlighting trends in consumer complaints through August 1, with credit reporting complaints seeing the sharpest increase compared to both the prior month and prior year.

The bureau has handled approximately 105,000 credit reporting complaints since it began accepting them in October 2012. Those complaints jumped 56% between June 2015 (4,289 complaints) and July 2015 (6,969 complaints). In analyzing the period of May through July 2015, complaints increased by 45% compared to the prior year.

Of those complaints,77% involved incorrect information on reports. Consumers frequently complained of debts already paid or debts not yet due showing up on their report, negatively affecting their credit scores. The CFPB said that consumers also had trouble accessing their reports as a result of rigorous online identity authentication questions.

The three companies that received the highest volumes of credit reporting complaints were Equifax, Experian and Transunion, which accounted for 97% of credit reporting complaints.

Overall, the bureau has handled 677,200 complaints nationally. In July, the most complained about financial product or service was debt collection, representing about 31% of complaints submitted. The second most-complained-about consumer product was credit reporting, accounting for approximately 6,696 complaints. The third most-complained-about financial product or service was mortgages, accounting for approximately 4,498 complaints. The CFPB did not list auto loans amount the 11 credit products that triggered complaints.

The bureau reported that in a year-to-year comparison, consumer loan complaints, which include pawn loans, title loans, and installment loans, showed the greatest percentage increase (61%) from the same time last year. They went from approximately 718 complaints to 1,154 complaints on average per month over a three-month time period. Bank account or services complaints showed the greatest percentage decrease over the same time period, going from a monthly average of 1,976 complaints in 2014 to 1,895 complaints in 2015 — a 4% decrease.

Hawaii, Maine, Georgia, and North Carolina experienced the greatest complaint volume increases from the same time last year, with Hawaii up 37%, Maine up 36%, and both Georgia and North Carolina up by 33%. South Dakota, New Mexico, and Alaska experienced the greatest complaint volume decrease from the same time last year, with South Dakota down 31%, New Mexico down 16%, and Arkansas down 11%.

“Whether a consumer is trying to get a mortgage, apply for a student loan, or buy a car, credit reports are fundamentally important in allowing people to access their financial goals,” said CFPB Director Richard Cordray in a press release. “As we see a rise in the number of consumers complaining about this issue, the Bureau will continue to work to ensure that credit reports are fair, accurate, and readily available to all consumers.”

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Asbury ‘Comfortable With’ CFPB Limits on Dealer Markup

DULUTH, Ga. — Asbury Automotive executives were confident during a quarterly earnings call Tuesday that the group’s internal cap on dealer markups, as well as its fixed F&I product prices, will keep it out of trouble with regulators like the Consumer Financial Protection Bureau (CFPB).

Craig Monaghan, Asbury’s president and CEO, said he didn’t know if rumors of possible action against Toyota Motor Credit and Nissan Motor Acceptance by the CFPB were true. But the regulator’s $24 million settlement with Honda Finance — and the captive’s resulting compensation policy that limits dealer discretion — didn’t faze the executive.

“… I think what we would say is that if [the actions against Toyota and Nissan’s captives] all go the same direction that Honda and BB&T [Bank] went, that’s something that we could be comfortable with,” Monaghan told callers. BB&T Bank switched to a flat-fee dealer compensation model at the beginning of the month.

“… With Honda and BB&T moving to these flat rates, flat fees or rate caps, essentially, if you were to convert that into a dollar basis, that would allow us to generate F&I finance, [profits per vehicle retail] that are pretty much in line with what we already see today,” the CEO noted. “So we think that’s something that we can manage through, and really don’t expect any bump in the business as we continue to move forward.”

The dealer group realized an uptick in F&I business during the quarter, reporting a 16% increase in revenue compared to the prior-year period. F&I revenue was at $67.6 million during the quarter — up from $58.4 million. F&I profit per vehicle retailed for the quarter was $1,373, up $42 on a year-over-year basis.

David Hult, the dealer group’s COO and executive vice president, attributed much of that increase to product sales. “Our focus is on product sales, and we feel like that’s what’s driving our growth,” he noted. “And tough, again, to predict the future, but we see opportunity to grow more.

“Rate is not nearly what it used to be as far as the percent of profit per car, and it’s down dramatically,” he continued. “So, it’s really all on the product side. As far as finance penetration year-over-year, it’s pretty flat.”

Asbury also reported increases elsewhere. Total revenue increased 12% to $1.7 billion, while new-vehicle revenues increased 11%. Revenue from used-vehicle sales increased 15%, while parts and service gross profit was up 14%. Total gross profit was up 9%.

But one area that was lagging was Asbury’s standalone used-car outlets, called Q Auto stores. The stores employ a one-price sales model that is driven by product specialists who handle deals from start to finish using an iPad. The stores saw a loss of $0.02 earnings per share in the second quarter.

Monaghan told callers that the dealer group is currently rolling out a “major piece of technology” in Q Auto stores to increase efficiency, but he noted that the group will not take any further steps until Q Auto locations achieve profitability.

“… We think Q Auto has the potential to be a huge business for us,” the executive added. “But we’ve got to solve the riddle.”

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House Committee Passes Bill to Repeal CFPB’s Auto Lending Guidance

WASHINGTON, D.C. — On Wednesday, a U.S. House committee passed H.R. 1737, a bipartisan bill to repeal the Consumer Financial Protection Bureau (CFPB)’s 2013 guidance, which warned finance sources that they would be held liable for discrimination that was the result of policies allowing dealers to mark up the interest rate on retail installment sales contracts.

The bill, introduced by Reps. Frank Guinta (R-N.H.) and Ed Perlmutter (D-Colo.) and passed in committee by a vote of 47 to 10, which included 13 Democrats. It currently has 126 co-sponsors in the full House, which includes 70 Republicans and 56 Democrats. “Discrimination in any form cannot be tolerated, and new-car dealers fully support the nation’s fair lending laws and the commitment of federal agencies to ensure fairness,” said Peter Welch, president of NADA. “But the CFPB’s policy of eliminating the ability of a consumer to get a discounted auto loan will restrict access to credit and hurt all consumers.

“Congressmen Guinta and Perlmutter have shown great bipartisan leadership to repeal the CFPB’s flawed guidance on indirect auto financing and protect the right of consumers to find the best credit possible when purchasing their vehicles,” Welch added. “Consumers have the right to find the best loan possible when purchasing a vehicle, the right to negotiate and the right to seek a better deal — and Washington shouldn’t try to deny that right.” A study by Charles River Associates, commissioned by the American Financial Services Association, found that the CFPB’s proxy methodology to determine alleged unintentional discrimination overestimates the African-American population by 41%. The CFPB’s own white paper on this subject also revealed errors as high as 20% in estimating an individual’s ethnicity.

H.R. 1737 would require the CFPB to study the consumer impact of its policy to eliminate consumer discounts in dealer showrooms, mandating public input and transparency, as well as ensuring the bureau works in consultation with other government agencies that Congress vested with regulatory authority.

The CFPB’s 2013 guidance urged auto lenders to move away from discountable compensation for auto dealers who arrange credit for their customers, and instead compensate dealers with non-negotiable payments like flat fees. Earlier this month, Honda Finance Corporation reached a $24 million settlement with the CFPB and Department of Justice, and agreed to cap the rate markup its allows dealers to make.


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