Tag Archive | "Consumer Financial Protection Bureau"

House Republicans Call CFPB Agenda a ‘Loss to Consumers’

Washington, D.C. — Thirty-five congressional Republicans warned the Consumer Financial Protection Bureau (CFPB) in a letter sent last Thursday that auto finance reforms it seeks could weaken competition and hurt a consumer’s ability to obtain the best financing terms.

The letter also requested information on the CFPB’s use of the disparate impact theory in its review of dealer participation programs auto finance sources offer to dealers. In March, the CFPB issued guidance that said finance sources could be held liable if it determines such programs, which allow auto dealers to mark up the interest rates on retail installment sales transactions in exchange for services rendered, create a bias that causes minority groups to pay higher rates.

“We are all strongly opposed to any discrimination in lending,” the letter stated. “However, it is highly concerning that the agency is issuing such significant new directives without affording the public a proper opportunity to comment on its methodology and analysis for determining whether discrimination has occurred and without addressing the effect of its directives on consumer financing and choice in the intensely competitive auto lending market.

“To allow Congress to evaluate the statistical model that the CFPB used to justify the new directives, we request that the agency provide us with the full set of details concerning its statistical disparate impact methodology.”

Last month, 13 Democrats issued a similar letter to the bureau, requesting background information “about the origination of and investigation into alleged practices within the auto lending industry.” The letter asked that the bureau to respond by June 7.

In the midst of this controversy, the CFPB has also confirmed the departure of Assistant Director Rick Hackett, who was hired in May 2011 to oversee installment lending markets, including auto finance. He’s the fourth top bureau official to depart this month. He was viewed as a key conduit between the bureau and the auto finance industry.

“In my opinion, Rick Hackett represented the best kind of regulator the auto financing industry could hope for,” said Jack Tracey, executive director, National Automotive Finance (NAF) Association. “He systematically set about gathering factual information about industry practices to identify and target areas that needed regulatory attention. He strived to meet with industry leaders to hear their views and gather data so that policy could be focused and would not adversely affect the industry at large. He attempted to identify problems and develop policy directed at the problems and was concerned about any unintended consequences resulting from policy.”

News of Hackett’s departure came 14 days after he made an appearance at the association’s 17th annual Non-Prime Auto Finance Conference, where he confirmed that supervisory investigation of auto finance sources are underway.

“His stay at the CFPB was too short for the industry to see the benefits of this approach,” Tracey added. “Hopefully, his replacement will pick up the flag and carry on the cause.”

To read the full letter, click here.

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CFPB Takes Aim at F&I Products

Via F&I Showroom

Less than two months after the Consumer Financial Protection Bureau (CFPB) confirmed it was watching policies related to dealer participation by issuing guidance to indirect auto lenders, the bureau appears to be targeting the sale of extended warranties and other F&I products.

Reports suggest that the CFPB has issued subpoenas to U.S. auto lenders related to the sale of products such as extended-service contracts and other add-ons. Service Contract Industry Council (SCIC) Executive Director and General Counsel Timothy J. Meenan said the move is “possible and probable” based on media reports, but he has yet to receive confirmation.

“It appears that they are looking at lending practices for sales of automobiles, and also looking at issues involving add-on products,” Meenan said.

In March, the CFPB said it would hold lenders that offer auto loans through dealerships responsible for unlawful, discriminatory pricing. It alleged that bank policies which allow auto dealers to mark up the interest rates on retail installment sale transactions in exchange for services rendered have caused a disparate impact, meaning that members of minority groups pay higher rates. Several banking institutions, including Ally Financial, received letters stating that they could face lawsuits under the Equal Credit Opportunity Act (ECOA).

Groups such as the National Automobile Dealers Association (NADA) and the National Association of Minority Automobile Dealers (NAMAD) have denounced the bureau’s actions, as the CFPB has not revealed how it is conducting its analysis. Using the disparate impact theory, the CFPB has taken the position that violations of the ECOA can be pursued based solely on statistics — meaning a lender can potentially be held responsible for unintentional impacts on minorities.

NADA’s Director of Public Relations, Charles Cyrill, said the organization was not aware of any CFPB action related to F&I add-ons. “We have not received any information about CFPB investigations regarding optional products other than dealer reserve,” he explained.

The CFPB has not publicly confirmed the targeting of F&I products, but a spokesman did not deny recent reports.

“When I look at what the CFPB’s been doing with mortgages and with, say, credit card companies, they’ve gone after things that are potentially misleading,” Meenan said. He explained that while credit card companies have been known to sign up customers for add-on products without their knowledge or understanding, car buyers must sign a contract for F&I add-ons that says, “Yes, I want this.”

Last year, the CFPB reached settlements with credit card issuers such as Capital One Bank, which agreed to refund approximately $140 million to 2 million customers, as well as pay a $25 million penalty for the way it marketed add-on products like payment protection.

“I think those kinds of misleading practices don’t really apply to automobile service contracts,” Meenan said. “You can, in the first 45 days, cancel a service contract and get all your money back. And thereafter, you can get the pro rata share back… There are lots of good consumer protections in these products that I think the CFPB will find attractive.”

The CFPB is not the only agency looking at the auto industry. At a panel discussion at George Mason University on May 2, Jon M. Seward, deputy at the U.S. Department of Justice’s Housing and Civil Enforcement Section, said that the DOJ has experienced a shift in referrals of violations from federal bank regulators including the CFPB.

“We’re seeing a lot more referrals involving pricing discrimination allegations in the unsecured consumer lending space; a number of auto-related referrals either involving indirect auto lending or some involving buy-here, pay-here car dealerships,” Seward said in a video.

In December 2012, the department signed a memorandum of understanding with the CFPB aimed at strengthening their coordination in connection with fair lending investigations. That’s why, Meenan says, “We’re not taking anything lightly… We are in a fact-finding mode using local council and others to find out what it is the CFPB is after.”

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Compliance Experts to Dealers: Heed CFPB’s Aggressiveness

Crystal Lake, Ill. — Automotive Compliance Consultants, a group of automotive retail compliance experts, cautions auto dealers to heed the aggressiveness of the Consumer Financial Protection Bureau (CFPB) in its indirect, but very real review of automobile dealership financing practices.

“Whether dealers like it or not, the CFPB is looking at and analyzing all financial practices and compliance with financial regulations by indirectly looking into those entities under CFPB’s jurisdiction that transact business with the retail automotive industry,” said David Missimer, general counsel for Automotive Compliance Consultants.

Terry Dortch, the firm’s CEO, who last week participated in the American Financial Services Association’s (AFSA) 30th Independents Conference & Exposition in Las Vegas, said Automotive Compliance Consultants joined the AFSA to engage with its members and committees to be at the forefront of an ever-changing financial landscape.

“The CFPB has made recent bold moves that are affecting how auto dealerships finance customers, as it is apparent that auto dealers, though technically not under the CFPB’s umbrella, are being targeted by the CFPB to pressure their lenders to modify their lending practices,” Dortch said.

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CFPB Opens Consumer Complaint Database to the Public

Washington — The Consumer Financial Protection Bureau (CFPB) launched the nation’s largest public database of federal consumer financial complaints, opening up to the public more than 90,000 individual complaints related to financial products and services.

The launch expands the Consumer Complaint Database significantly from about 19,000 credit card complaints to more than 90,000 complaints on mortgages, student loans, bank accounts and services, other consumer loans and credit cards.

“By sharing these complaints with the public, we are creating greater transparency in consumer financial products and services,” CFPB Director Richard Cordray said at a field hearing in Des Moines, Iowa, to announce the expansion of the bureau’s complaint database. “The database is good for consumers and it is also good for honest businesses. We believe the marketplace of ideas can do great things with this data.”

The database allows the public to see what consumers complained about and why, as well as how and when the company in question responds. It has more than one million data points, covering approximately 450 companies. It includes the type of complaint, the date of submission, the consumer’s ZIP code, and the company that the complaint concerns.

The database also includes information about the actions taken on a complaint by those companies — whether the company’s response was timely, how the company responded, and whether the consumer disputed the company’s response. A consumer’s identity and other personal information are not included in the data.

The database allows users to easily track, sort, search and download information. The data also is available via API (application programming interface), which allows developers to build applications, conduct analyses and perform research. Consumers can build their own visualizations, charts and graphs. The data also can be embedded on other websites and shared through social media.

The live database updates daily. So, as the CFPB handles more complaints, more will be added. When the CFPB accepts consumer complaints about other financial products and services, they will be put on the database after a period of time. Complaints are listed in the database only after the company responds to the complaint or after they have had the complaint for 15 days, whichever comes first.

While the allegations in the complaint are not verified, a commercial relationship between the consumer and the company is substantiated before the complaint is added to the database.

Consumers are given the option to review and dispute company responses. The CFPB then reviews that feedback. The CFPB also indicated it will use the database along with other information, such as the timeliness of the company’s response, in a variety of ways, including aiding the bureau to prioritize complaints for investigation.

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Obama Nominates Former Ohio AG to Lead New Bureau

WASHINGTON — President Obama has named former Ohio Attorney General Richard Cordray as his nomination for director of the new Consumer Financial Protection Bureau (CFPB), which was created by the passage of the Dodd Frank Act last year. The nomination will require Senate confirmation, which, by all account, will be a problem.

Cordray previously served as Ohio’s treasurer and as head of the CFPB’s enforcement division for the last six months under current interim director and agency architect Elizabeth Warren.

During the announcement, President Obama discussed Dodd-Frank’s provisions, which included making taxpayer-funded bailouts illegal, Wall Street reforms and stronger consumer protection rules.

“Already, the agency is starting to do a whole bunch of things that are going to be important for consumers — making sure loan contracts and credit card terms are simpler and written in plain English,” the president said. “Already, thanks to the leadership of the bureau, we’re seeing men and women in uniform who are getting more protections against fraud and deception when it comes to financial practices.”

In her White House blog post announcing the nomination, Warren described Cordray as someone that would be a “strong leader” for the CFPB. She added that he is someone with “a proven track record of fighting for families during his time as head of the CFPB enforcement division, as attorney general of Ohio and throughout his career.”

“He was one of the first senior executives I recruited for the agency, and his hard work and deep commitment make it clear he can make many important contributions in leading it,” Warren continued in her blog post. “Rich is smart, he is tough and he will make a stellar director. I am very pleased for him and very pleased for the CFPB.”

In this month’s Legal column, Tom Hudson, partner at the law firm of Hudson Cook LLP, talked about the many challenges the CFPB is facing as it gets set to assume regulatory authority on July 21. The Republican-controlled Senate has already said it will block President Obama’s nomination. Republican lawmakers also have introduced several proposals to reduce the bureau’s power and independence.

Because of efforts put forth by the National Automobile Dealers Association, dealers were largely excluded from the CFPB’s oversight. However, the Dodd-Frank Act granted the FTC new rulemaking powers as it pertains to dealers. The agency is now hosting a series of roundtables to determine where it should focus its attention when it assumes its new powers. The next roundtable is scheduled for Aug. 2-3 at St. Mary’s University School of Law.

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