Tag Archive | "compliance"

CFPB Official Who Sued Trump Resigns, Drops Suit


WASHINGTON, D.C. — Leandra English, who former Consumer Financial Protection Bureau Director Richard Cordray’s picked to succeed him as acting director, is ending her court battle to unseat Mick Mulvaney as acting head of the bureau and her employment with the embattled regulator.

On Friday, English’s attorney, Deepak Gupta, posted a statement on Twitter that English is stepping down from her role as deputy director and that she plans to file court papers today to bring her litigation over the leadership of the CFPB to a close following President Trump’s nomination of Kathy Kraniger as permanent director of the agency.

“I will be stepping down from my position at the Consumer Financial Protection Bureau early next week, having made this decision in light of the recent nomination of a new director,” the statement, attributed to English, reads. “I want to thank all of the CFPB’s dedicated career civil servants for your important work on behalf of consumers. It has been an honor to work alongside you.”

On Monday, Mulvaney announced that Brian Johnson, who currently serves as the bureau’s principal policy director, will assume the bureau’s second leadership post as acting director. Prior to his appointment to the CFPB, Johnson served as senior counsel to Rep. Jeb Hensarling (R-Texas) at the House Financial Services Committee.

Mulvaney described Johnson as an “indispensable advisor,” noting that he was the first person he hired at the bureau. “Brian knows the bureau like the back of his hand. He approaches his role as a public servant with humility and unsurpassed dedication,” Mulvaney said in a statement released late Monday. “His steady character, work ethic, and commitment to free markets and consumer choice make him exactly what our country needs at this agency.”

When Cordray resigned on Nov. 24, 2017, he elevated English, his former chief of staff, to deputy director — a move that established her as acting director until the Senate confirms Trump’s permanent appointee.

Hours after Cordray’s announcement, Trump appointed Mulvaney as acting director, citing his authority under the Federal Vacancies Act (FVRA) of 1988. English filed suit two days later (Nov. 26) to block the appointment, arguing that she was the rightful acting director due to a successor statute in the CFPB-creating Dodd-Frank Act.

English’s attorneys also questioned whether allowing Mulvaney, who once characterized the bureau as a “sick joke,” to continue serving as a White House official would compromise the bureau’s independence. The argument was backed by the former lawmakers who championed the CFPB-creating Dodd-Frank Act.

“That was our intent, to strip this away from the politics of the moment, to give consumers the sense of confidence that there was one place here — when it came to their financial services — [where] there would be people watching out for them, regardless of political party or partisanship,” said former Sen. Chris Dodd during media call this past November.

On Nov. 29, three days after filing suit, English’s request for a restraining order to block Mulvaney’s appointment was denied by U.S. District Judge Timothy J. Kelly. English’s attorneys then filed an amended complaint on Dec. 6, 2017, requesting a preliminary injection to remove Mulvaney as acting head of the agency. That request was also denied by Kelly, a ruling set the stage for English’s appeal.

“The Court finds that English is not likely to succeed on the merits of her claims, nor is she likely to suffer irreparable harm absent the injunctive relief sought,” Judge Kelly wrote in his 46-page decision. “Moreover, the balance of the equities and the public interest also weigh against granting the relief. Therefore, English has not met the exacting standard to obtain a preliminary injunction.”

Kelly’s ruling set the stage for English’s appeal, on which a three-judge federal appeal panel in Washington, D.C., has yet to issue a ruling.

On June 19, Trump nominated Kraninger, a White House budget official who works under Mulvaney and served as an aide to several Republican senators, to serve as the next director of the bureau. The announcement came a week before Mulvaney’s interim term was set to end.

“I have never worked with a more qualified individual than Kathy. Her commitment to the law, to protecting consumers and to defending what works in our vibrant financial services sector, all while respecting hard-working taxpayers who pay their bills and play by the rules ensures that the bureau will be in good hands throughout her term,” Mulvaney said in a statement issued the same day Kraninger’s nomination was announced. “Vigorous independence, sharp-as-a-tack intelligence, and simple, old-fashioned, Midwestern humility make her the ultimate public servant. I know that my efforts to rein in the bureaucracy at the Bureau of Consumer Financial Protection to make it more accountable, effective and efficient will be continued under her able stewardship.”

Critics like Democratic Sen. Elizabeth Warren, however, have questioned Kraninger’s qualifications for the job because of her lack of experience in financial regulation or consumer protection.

email hidden; JavaScript is required Warren, who considered the architect of the CFPB, tweeted the day Kraninger’s appointment was announced. “That’s bad news for seniors, servicemembers, students — and anyone else who doesn’t want to get cheated. And it gets even worse.”

As for English’s Friday announcement, Warren said the following in a statement: “From the earliest days of the CFPB, Leandra has directed her passion and formidable skills to building a strong, professional agency that stands up for consumers. I’m grateful for her service and wish her the best in her future endeavors.

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EFG Companies: Dealers Must Embrace Industry Paradigm Shift


DALLAS, Texas — Staffing and customer engagement models are the top issues impacting the future health of the retail automotive industry, EFG Companies President and CEO John Pappanastos said today.

The F&I product provider’s chief executive delivered his comments as part of a state of the industry address the company posted on its website. Pappanastos encourage dealership principals and senior managers to quickly address those issues or risk becoming a dinosaur in today’s rapidly changing consumer car-buying mode, noting that digital buying habits, millennial and Gen Z consumers, and women are forcing industry change.

According to the National Automobile Dealers Association’s 2017 Workforce Study, retail automotive suffered from a 43% turnover rate — up two points from 2016. Additionally, the automotive industry experienced an 88% attrition rate among female new hires, and a below average rate of millennial new hires when compared to other industries.

Pappanastos said many retail automotive businesses lack a comprehensive plan to become an employer of choice, and instead rely heavily on traditional “bell-to-bell” hours, commission-only payment plans, and limited training. He urged them to immediately develop a strategy for hiring, training, and promoting the best and brightest employees to operate in a world where consumers are demanding a more digital process with a better customer experience.

The executive noted that a single poor hiring decision in F&I can easily result in up to $75,000 in lost profit due to onboarding costs and lost production, adding that the retail automotive industry’s focus on daily operations also hampers leadership development and obscures the growth path for millennial hires who, as a group, require opportunities for promotion.

The F&I product executive also touched on recent research from Cox Automotive, which showed that 80% of consumers want to complete at least half of the car-buying process digitally. He also cited a 2018 Deloitte study showing that “dealers create a fragmented and inconsistent approach to the customer,” which leads to inefficient customer contact, inconsistent messaging, and ultimately failure to sell and build loyalty.

“While I realize change is difficult, dealership principals must incorporate greater consumer-facing digital platforms into their dealerships,” said Pappanastos, adding that hiring employees who are experts in online customer engagement and digital sales approaches represents one solution. “Failure to do so will result in lost revenue. We must remember the old adage of ‘meet the customer where they are.’ And today’s customer is clearly online.”

Pappanastos also encouraged dealerships not to lose sight of compliance. “Job skills are easy to assess. What’s difficult is finding candidates who have solid character,” the executive said. “During these tumultuous times, dealerships must maintain a high degree of integrated compliance. The resulting fines, and damage to reputation, can result in significant business loss due to very clear and public online postings and reviews.”

Pappanastos remarks during his state of the industry address focused on the future health of the retail automotive industry and sounded a wakeup call to dealership principals to quickly embrace changing consumer buying preferences. He also encouraged future millennial and Gen Z employees to seek out careers in retail automotive, noting that exciting changes and their opportunity to make industrywide impact.

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House Approves Resolution to Repeal CFPB’s Dealer Participation Guidance


WASHINGTON, D.C. — The U.S House approved on Tuesday its version of the resolution of disapproval of the Consumer Financial Protection Bureau’s dealer participation guidance. The resolution now heads to President Trump’s desk, where it is expected to be signed.

The 234-175 vote was cast largely along party lines, although 11 Democrats crossed the aisle to approve the resolution. One Republican, Ileana Ros-Lehtinen of Florida, voted against the resolution, which, when signed by President Trump, will bring an end to the automotive retail and finance industry’s five-year effort to get the bureau’s controversial March 2013 guidance rescinded.

“This vote indicates that American consumers have spoken to their elected representatives to say they want competitive pricing on vehicle loans,” said Chris Stinebert, president and CEO of the American Financial Services Association, in a statement issued by the lender trade group. “We are an industry that competes for consumers’ trust as well as their business while helping them acquire vehicles that support their transportation needs.”

The vote comes less than a month after the U.S. Senate voted 51-47 to approve its version of the resolution and five months after the Government Accountability Office (GAO) said Congress has the power under the Congressional Review Act (CRA) to repeal the bureau’s dealer participation guidance.

Under the CRA, both houses must approve resolutions of disapproval by a simple majority and receive the president’s signature to kill a regulation. When the latter happens to S.J. Res. 57, which was introduced in March by Sen. Jerry Moran (R-Kansas), it’ll mark the first time the CRA has been used on a rule that has been in effect for several years. And once repealed, the CRA prohibits the reissuance of a rule in substantially the same form unless authorized by Congress.

The CFPB alleged in its five-page fair lending guidance that bank policies which allow auto dealers to mark up interest rates on retail installment sale transactions as compensation for services rendered create a significant risk of unintentional, disparate impact discrimination. It also warned lenders active in the indirect auto finance channel that they would be held liable for unlawful, discriminatory markups.

The bulletin goes on to state that lenders operating in the indirect auto finance channel “should take steps to ensure that they are operating in compliance with the [Equal Credit Opportunity Act] and Regulation B as applied to dealer markup and compensation policies.” It then listed a variety of steps and tools they could employ to address the bureau’s stated fair lending risks, including “eliminating dealer discretion to markup buy rates and fairly compensate dealers using another mechanism, such as a flat fee per transaction, that does not result in discrimination.”

Auto industry trade groups have argued that the bureau used its guidance to indirectly regulate the activities of dealers, which are mostly exempt from the bureau’s oversight under the Dodd-Frank Act. They also claimed the bureau was aware its methodology for determining disparate impact and potential harm to protected classes was flawed and prone to overestimation, yet pushed forward with claims of discrimination that resulted in enforcement actions that imposed millions of dollars in fines on auto finance sources, including Ally Financial.

The guidance also caused several finance sources, including BB&T and BMO Harris, to switch to a flat-fee compensation model. BB&T switched back to a dealer spread compensation plan earlier this year, while BMO switched to a three-tiered flat-rate model last summer.

The guidance was also behind consent orders the CFPB entered into with Fifth Third Bank, Toyota Motor Credit Corp., and American Honda Finance Corp regarding their dealer markup policies. As a result of those orders, the bank and two captives agreed to lower their markup caps to 1.25% and 1%. Fifth Third’s consent order, however, is set to expire this September, while Toyota Motor Credit’s and Honda Finance’s consent orders are set to expire in February 2019 and July 2020, respectively. The three finance sources yet to say whether they’ll return to a dealer participation model when they do.

“There’s no question that this is a rule masquerading as guidance. The CFPB never submitted the guidance to the GAO. They could have done so. Had they done so the 60-day clock would have run, we wouldn’t be here,” David Regan, executive vice president of legislative affairs for the National Automobile Dealers Association (NADA), said last week during a press briefing. “They chose not to submit that to Congress because they did not want the additional exposure to public notice and comment. Within just a few weeks of the guidance being issued in March of 2013, the congressional inquiries started pouring in asking very specific questions about the methodology that we now know was flawed. And yet, the agency repeatedly refused to respond to these questions.”

Congress has attempted to kill the bureau’s guidance through the legislative route. In November 2015, the House of Representatives approved the Reforming CFPB Indirect Auto Finance Guidance Act by a 332-96 vote. The bill, however, was not acted upon by the Senate before the end of the 114th Congress.

Last March, Sen. Toomey asked the GAO whether the CFPB’s guidance on dealer participation falls under the CRA. The agency delivered its answer this past December, writing in a letter to Toomey that it did.

When it initially issued its guidance, the bureau argued that because it had no legal effect on regulated entities, the CRA does not apply. The GAO, however, stated in its response to Toomey’s request that the bulletin “fits squarely within the Supreme Court’s definition of a statement of policy,” because it provides information on the manner in which the bureau planned to exercise its discretionary enforcement power.

And according to the GAO, the CRA “establishes special expedited procedures under which Congress may pass a joint resolution of disapproval that, if enacted into law, overturns the rule.” In a statement posted on its website just after the GAO delivered its answer, Sen. Toomey said he intended “to do everything in my power” to repeal the bureau’s guidance under the CRA.

“The joint resolution is a measured response to the CFPB’s attempt to avoid congressional scrutiny by issuing ‘guidance’ that imposed a new policy without necessary procedural safeguards,” said Peter Welch, president and CEO of the NADA, in a statement issued following the House vote. “Enactment of S.J.Res. 57 will help ensure every consumer’s right to get a discounted loan in the showroom.

“Every customer deserves to be treated honestly and fairly when purchasing or financing a car or truck, and there is no room for discrimination of any kind, period,” he continued. “We continue to encourage all local dealerships to take up NADA’s voluntary fair credit compliance program, which is based on a U.S. Department of Justice model. It helps eliminate fair credit risk in auto lending while ensuring a competitive marketplace.”

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Appeals Court Rules CFPB Structure Is Constitutional


WASHINGTON, D.C. — Nineteen days after the deputy director of the Consumer Financial Protection Bureau kicked off the next phase in her battle for control of the bureau, a federal appeals court upheld the constitutionality of the CFPB’s structure.

On Jan. 31, the D.C. Court of Appeals ruled 7-3 that a provision in the Dodd-Frank Act that says the CFPB director can only be removed for cause does not unconstitutionally constrain the president. The court also noted in its ruling, written by Judge Cornelia Pillard, that the way the CFPB is funded “fits within the tradition of independent financial regulators.”

“Applying binding Supreme Court precedent, we see no constitutional defect in the statute preventing the president from firing the CFPB director without cause. We thus uphold Congress’ choice,” Pillard wrote, adding that “no relevant consideration gives us reason to doubt the constitutionality of the independent CFPB’s single-member structure.”

The decision reverses the court’s October 2016 decision that declared the CFPB’s leadership unconstitutional by a 2-1 ruling and vacated a $103 million fine the bureau levied against New Jersey-based PHH Corp. in 2015 for allegedly accepting kickbacks from mortgage insurers.

The court did reject the bureau’s penalty against PHH in its ruling.

That same court will now hear CFPB Deputy Director Leandra English’s appeal of last month’s ruling by U.S. District Timothy J. Kelly, who sided with the White House for a second time and denied the bureau official’s request for a preliminary injunction to remove Mick Mulvaney as acting head of the CFPB.

English, who has requested an expedited review of her case, argues that she is the rightful acting director, having been appointed as deputy director by former CFPB Director Richard Cordray the same day he officially resigned from his post on Nov. 24.

Citing his authority through the Federal Vacancies Act (FVRA), President Trump appointed Mulvaney as acting director hours after Cordray elevated the title of his former chief of staff. English filed suit two days later to block the appointment, arguing that a successor statute in the Dodd-Frank Act made her the lawful acting director until the Senate confirms Trump’s permanent appointee.

On Nov. 28, Judge Kelly denied English’s request for a temporary restraining order to block Mulvaney’s appointment on grounds that the FVRA gives the president the authority to appoint a replacement. English’s attorneys then filed an amended complaint on Dec. 6 requesting a preliminary injunction.

Unlike the temporary restraining order, an injunction can be appealed to the U.S. Court of Appeals if not granted. That’s what English’s attorneys did just two days after Judge Kelly denied her request.

“The President has designated Mulvaney the CFPB’s acting director, the CFPB has recognized him as the acting director, and it is operating with him as acting director,” Kelly wrote in his Jan. 11 ruling. “Granting English an injunction would not bring about more clarity; it would only serve to muddy the waters.”

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FTC Approves Consent Order in Texas Dealer’s Deceptive Advertising Case


WASHINGTON, D.C. — Following a public comment period, the Federal Trade Commission (FTC) said this week it has approved the final consent order settling its deceptive advertising charges against Cowboy AG LLC, a Dallas-based company doing business as Cowboy Toyota and Cowboy Scion.

The announcement is related to a December 2017 compliant related to Cowboy Toyota’s Spanish-language newspaper ads. According to the FTC, the dealership violated the FTC Act by misrepresenting the cost of purchasing or leasing cars as well as the qualifications or restrictions for financing or leasing cars. It also mispresented the availability of vehicles for sale, according to the FTC’s complaint.

The regulator also charged the dealership with failing to disclose credit or lease terms required under the Truth in Lending Act (TILA) or Consumer Leasing Act when it touted certain “triggering” terms of credit or lease, such as the monthly payment. The complaint also alleged that favorable terms were prominently stated in the Spanish-language ads, with material limitations to those terms provided only in fine-print English at the bottom.

The final order settling the FTC’s charges prohibits Cowboy Toyota from misrepresenting the cost of financing, buying, or leasing a vehicle. The order also requires the dealership to accurately represent any qualifications or restrictions on a consumer’s ability to obtain offered financing or lease terms, including restrictions based on their credit history.

The order also prohibits the dealership from misrepresenting the number of vehicles, makes, or models available for purchase or lease. Cowboy Toyota is also required to clearly and conspicuously disclose all financing and lease terms in its ads, as well as all related qualifications or restrictions. And if Cowboy Toyota makes a representation in one language, it must state clearly and conspicuously any material limitations in the same language, the FTC said.

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Judge Again Rules in Favor of Trump in Battle for Control of CFPB


WASHINGTON, D.C. — A federal judge once again sided with the White House in the battle for control of the Consumer Financial Protection Bureau, denying last Wednesday a request by CFPB Deputy Director Leandra English for a preliminary injunction to remove President Donald Trump’s appointee as acting head of the agency.

The ruling comes less than 50 days after U.S. District Judge Timothy J. Kelly denied English’s request for a restraining order to block President Trump’s appointment of White House Budget Director Mick Mulvaney as acting director. It now sets the stage for an appeal by English, who has said she is the rightful acting director.

“The Court finds that English is not likely to succeed on the merits of her claims, nor is she likely to suffer irreparable harm absent the injunctive relief sought,” Judge Kelly wrote in his 46-page decision. “Moreover, the balance of the equities and the public interest also weigh against granting the relief. Therefore, English has not met the exacting standard to obtain a preliminary injunction.”

Judge Kelly originally denied English’s request for a temporary restraining order to block Mulvaney’s appointment on Nov. 28. The ruling, however, pertained to the restraining order and not the merits of the case, with English’s attorney Deepak Gupta hinting that Kelly’s ruling “would not be the final answer.”

Gupta then filed an amendment complaint on behalf of English on Dec. 6 requesting a preliminary injunction. Unlike the temporary restraining order, the injunction can be appealed to the U.S. Court of Appeals for the D.C. Circuit if not granted.  Gupta gave no indication that Wednesday’s ruling would be appealed, although he expressed disappointment in Kelly’s decision in a Twitter post.

“The law is clear: President Trump may not circumvent the Senate confirmation process by installing his White House budget director to run the CFPB part time,” Gupta wrote. “Mr. Mulvaney’s appointment undermines the bureau’s independence and threatens its mission to protect American consumers.”

When Cordray formally resigned as CFPB director on Nov. 24, he elevated English, his former chief of staff, to deputy director. The move established her as acting director until the Senate confirms Trump’s permanent appointee.

Hours after Cordray’s announcement, Trump appointed Mulvaney as acting director, citing his authority through the Federal Vacancies Reform Act (FVRA). English filed suit two days later to block the appointment, arguing that she was the rightful acting director due to a successor statute in the CFPB-creating Dodd-Frank Act.

English’s attorneys also questioned whether allowing Mulvaney, who once characterized the bureau as a “sick joke,” to continue serving as a White House official would compromise the bureau’s independence. The argument was backed by the former lawmakers who championed the CFPB-creating Dodd-Frank Act.

“That was our intent, to strip this away from the politics of the moment, to give consumers the sense of confidence that there was one place here — when it came to their financial services — [where] there would be people watching out for them, regardless of political party or partisanship,” said former Sen. Chris Dodd during media call on Nov. 30.

Dodd joined former Rep. Barney Frank and more than 30 current and former members of Congress in writing one of five separate amicus briefs in support of English’s position. In Wednesday’s ruling, however, Judge Kelly said that argument is completely without support in the text of the Dodd-Frank, adding that the court “declines to create such a restriction out of whole cloth.”

“Simply put, Dodd-Frank does not prohibit the director of the OMB from also serving as the acting director of the CFPB,” Kelly wrote in his ruling.

“The President has designated Mulvaney the CFPB’s acting director, the CFPB has recognized him as the acting director, and it is operating with him as acting director,” Kelly continued. “Granting English an injunction would not bring about more clarity; it would only serve to muddy the waters.”

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