Tag Archive | "Consumer Financial Protection Bureau"

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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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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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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BB&T Switching to Flat Fee Compensation Model

GREENSBORO, N.C. — BB&T Bank’s dealership finance arm, BB&T Dealer Finance, announced today that it will be switching to a flat fee compensation model that eliminates dealer markups on retail installment sales contracts, reports F&I and Showroom. Some of the bank’s dealer clients believe the move was motivated by the Consumer Financial Protection Bureau (CFPB)’s actions in the auto lending arena.

The program changes will go into effect July 1, according to a press release issued by the bank. Dealers said they were contacted by phone following a regional meeting and told that BB&T will now be paying dealers 3% of the amount a car buyer finances, up to a maximum of $2,500.

“I told them this will hurt their volume,” said an F&I manager who requested that his name be withheld. “This is exactly what the bureau longs for: no litigation or outright charges — just simple scare tactics.”

Since issuing its fair lending guidance to auto lenders in March 2013, the CFPB has recommended that lenders adopt a flat fee compensation policy to eliminate fair lending risks. The regulator alleges that policies allowing dealers to mark up the interest rate on retail installment sales contracts result in minority car buyers paying higher rates. However, industry groups like the National Automobile Dealers Association say the methodology the CFPB uses to determine the presence of discrimination in auto lending is flawed and that a flat fee compensation model will not eliminate dealer pricing discretion, since dealers would still exercise discretion in selecting the finance source to which they would sell a contract.

“We are committed to the fair and equal treatment of all consumers,” said Derek Lane, BB&T Dealer Financial Services manager, in a release issued today by the bank. “The automobile finance industry provides a valuable service, and we highly value our long-standing dealer relationships. This new program will strengthen the process long term for both consumers and our dealer clients.”

A BB&T spokesperson contacted by F&I and Showroom added: “After testing and evaluating flat-fee products for the last two years, we believe this is a good long-term business decision for both consumers and our dealer partners.”

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CFPB Sues Auto Lender for Aggressive Debt Collection Tactics

WASHINGTON D.C. — The Consumer Financial Protection Bureau (CFPB) has sued auto finance source Security National Automotive Acceptance Company (SNAAC) for aggressive debt collection tactics against military service members, reports F&I and Showroom.

The CFPB charged the company with using illegal threats and deceptive claims in order to collect debts. It is seeking compensation for harmed consumers, a civil penalty and an order prohibiting the company from committing future violations, claiming the company violated the Dodd-Frank Wall Street Reform and Consumer Protections Act by using aggressive collection tactics that took advantage of service member’s special obligations to remain current on debts.

The Ohio-based auto finance source operates in more than 24 states and specializes in providing vehicle financing to active-duty and former military members.

Once these consumers defaulted, SNAAC threatened to contact a service member’s chain of command and in some cases exaggerated the consequences of not paying. The CFPB alleges that thousands of people were victim to the company’s tactics.

“Security National Automotive Acceptance Company took advantage of military rules to put enormous pressures on service members to pay their debts,” said CFPB Director Richard Cordray. “For all the security they provide us, service members should not have their financial and career security threatened by false information from an auto loan company.”

The CFPB also provided specific details on SNAAC’s tactics, which included telling service members that failing to pay could result in action under the Uniform Code of Military Justice (UCMJ). This action could include demotion, loss of promotion, discharge, denial of re-enlistment, loss of security clearance or reassignment. According to the CFPB, these actions were extremely unlikely.

The auto finance source also contacted commanding officers in an effort to force payment, suggesting that service members were in violation of the UCMJ and other regulations. This tactic took advantage of many consumers who were unaware of the provision and were unclear of how much pressure would be brought to bear because of it.

The company also falsely threatened to garnish wages, which is only possible after a court judgment is obtained. The finance company also threatened to take legal action against customers when, in fact, they had not determined whether they would actually take such an action and in many cases had no such intention at the time.

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House Action on Disparate Impact Not Affecting CFPB; Remains Dealer Concern

CRYSTAL LAKE, Ill. – Contrary to news reports, the U.S. House of Representatives’ vote to eliminate the Department of Justice’s use of disparate impact does not negate the Consumer Financial Protection Bureau’s (CFPB) use of the legal theory in auto finance cases even if the bill passes the Senate and is not vetoed by the President, said Automotive Compliance Consultants.

Unfortunately, an article appearing June 4 stated the House of Representatives passed an amendment to H.R. 2578, the Fiscal Year 2016 Commerce, Justice, and Science Appropriations Act, that would bar the Department of Justice from using funds for litigation in which the regulator seeks to apply the disparate impact theory.

The article went on to discuss the significance of the amendment to the use of disparate impact by the Consumer Financial Protection Bureau to support actions in automobile finance.

“The amendment to H.R. 2578 will have no effect on the CFPB’s use of the legal theory in auto finance,” said David R. Missimer, general counsel for Automotive Compliance Consultants. “The reason for this is the amendment is limited, and only bars the use of appropriated funds by the Department of Justice to bring Fair Housing Act enforcement actions that rely on an allegation of liability under the HUD Disparate Impact Rule.”

The amendment voted on states: None of the funds made available in this Act may be used by the Department of Justice to enforce the Fair Housing Act in a manner that relies upon an allegation of liability under section 100.500 of title 24, Code of Federal Regulations (Rule prohibiting discriminatory effect).

“The Act if passed will not preclude the Department of Justice from continuing to use disparate impact in Equal Credit Opportunity Act cases,” Missimer noted. “Thus, disparate impact very much remains an issue for dealers and finance companies.”

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