Tag Archive | "CFPB"

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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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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