Tag Archive | "legislation"

House Passes Legislation that Would Nullify CFPB Bulletin Regulating Car Dealers


WASHINGTON – The U.S. House of Representatives recently approved a piece of legislation that would nullify a 2013 bulletin issued by the Consumer Financial Protection Bureau, but would likely need the Senate to do the same by a veto-proof margin.

The Reforming CFPB Indirect Auto Financing Guidance Act targets a bulletin that gave guidance on Equal Credit Opportunity Act indirect auto lending requirements, reports legalnewsline.com.

“The bill passed with a veto-proof margin in the House, but it will have to pass the Senate with the two-thirds majority needed to withstand the possibility of a presidential veto,” said Elizabeth M. Bohn, shareholder at Carlton Fields Jorden Burt.

Bohn, who co-chairs the firm’s Consumer Finance Industry Group, added that those who opposed the bill argue that it would prevent the CFPB from effectively carrying out its duty to protect minority borrowers, and promised an administration veto.

“In my personal opinion, the bill does not appear to impair the CFPB’s authority to protect minority borrowers,” Bohn said.

“Rather, it is aimed at ensuring that (1) the Bureau does not regulate car dealers, who are exempt from (the Dodd-Frank Wall Street Reform and Consumer Protection Act); (2) that the methodology used by the Bureau to support its regulatory guidance based on findings of disparate impact is transparent and yields reliable information about disparate impact; and (3) that industry has fair notice of CPFB regulatory action vs. ‘guidance’ that appears to be de facto regulation,” Bohn said.

In 2013, the CFPB issued guidance that challenged a dealer’s ability to discount the annual percentage rate (APR) offered to consumers to finance vehicle purchases.

According to the bulletin, the CFPB confirmed that some indirect auto lenders use “markup and compensation policies” — policies that allow auto dealers to “mark up lender-established buy rates” and then compensate the dealers for those markups.

And since the compensation policies are created at the discretion of the dealers, the bulletin asserted that there is a “significant risk” of creating pricing disparities based on race, national origin or other prohibited bases. The ECOA makes discrimination by a creditor “in any aspect of a credit transaction” illegal.

CFPB’s bulletin proposed a strong influence over common auto industry practices, and some have wondered if the CFPB’s ability to change the auto industry world sets a difficult precedent in the industry. Bohn believes it does.

“The CFPB’s regulatory and enforcement activities against indirect auto lenders affect the auto finance industry and dealers alike,” Bohn said.

“For lenders to implement the policies and procedures needed to comply with Bureau expectations is costly and burdensome. Those added costs and burdens imposed on lenders, along with the reduction in profitability to dealers for originating contracts, could reduce the number of deals financed and lead to fewer financing options for consumers.”

Since the CFPB is supposed to deal with financial institutions, some question whether the CFPB is overstepping its boundaries by attempting to regulate the auto industry.

“The CFPB is authorized to regulate financial institutions and larger market participants providing consumer financial services, including consumer auto lenders. It isn’t authorized to regulate auto dealers,” Bohn said.

“The bill’s sponsors claim that the Bulletin represents a Bureau effort at an end-run around Dodd-Frank’s exclusion of auto dealers by attempting to regulate compensation paid to auto dealers.

“Specifically, by using enforcement actions against large indirect auto lenders to pressure finance companies to lower caps they set on dealer reserve or eliminate this discretion altogether. While indirect lenders who purchase consumer auto loans may be creditors subject to the Equal Credit Opportunity Act, and subject to CFPB enforcement, I would agree that the Bulletin’s expectation that lenders impose significant control on dealer compensation and mark up policies to avoid violations of ECOA swerves into regulation of auto dealers.”

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Provision in New Tax Bill May Benefit Dealers


WASHINGTON, D.C. — Congress recently passed the “Protecting Americans from Tax Hikes Act of 2015,” a $622 billion tax bill that will allow dealers and their customers to expense a larger portion of business equipment purchases, according to a release from the National Automobile Dealer Association. The NADA said the provisions included in the Act will interest people purchasing passenger automobiles and trucks for business purposes, reported F&I and Showroom.

A provision in the act will grant dealers an additional $8,000 in first year-depreciation for certain business-related vehicles purchased in 2015. However, to use the provision in 2015, dealers must purchase qualifying vehicles before Dec. 31, 2015. The additional $8,000 continues into 2016 and 2017 but will be gradually phased out starting in 2018, according to the NADA.

The legislation has received strong support from the NADA and American Truck Dealers and has been signed by President Barack Obama.

The Act will also permanently extend and modify the limitations and treatment of certain real property as Sec. 179 deductions. The current $25,000 and $200,000 expensing limitation and phase-out amounts will be increased to $500,000 and $2 million, respectively, and will be indexed for inflation starting in 2016.

The current $250,000 expensing limitation for qualified real property will also be eliminated in 2016, according to the NADA. Furthermore, air conditioning and heating units placed in service in tax years beginning after 2015 will be eligible for expensing.

The act will also increase the amount of unused AMT credits that may be claimed in lieu of bonus depreciation starting in 2016. Bonus depreciation for property placed in service during 2015-2017 will be set at 50 percent, 40 percent in 2018 and 30 percent in 2019. Tax payers will continue to be able to choose to use AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015, according to the NADA. Qualified improvement property will now also be included as bonus depreciation.

The NADA encourages dealers to consult their tax advisor to determine the best way to maximize potential tax savings.

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FTC Calls on States to Lift Direct-to-Consumer Sales Bans


LANSING, Mich. — The debate over whether motor vehicle manufacturers should be allowed to sell directly to consumers in the state has resurfaced after last year’s passage of a law that added tighter restrictions on direct-to-consumer sales. This time, the Federal Trade Commission has weighed in.

Reigniting the debate over direct-to-consumer sales of motor vehicles is a bill, S.B. 268, introduced on April 15 by Sen. Darwin L Booher (R-Evart, Mich.). The legislation, which is currently being considered by the Senate’s economic development committee, would allow Elio Motors and other manufacturers of three-wheel “autocycles,” to choose whether to sell directly to consumers, through dealers or through a combination of the two.

The legislation comes after last October’s controversial passage of legislation that was originally intended to prohibit vehicle OEMs from dictating fees a franchised dealer can charge customers. But thanks to a procedural loophole, state lawmakers were able to toss in a last-minute amendment without public comment or debate. And that amendment reinforced the state’s prohibition on selling vehicles directly to consumers, effectively banning Palo Alto, Calif.-based Tesla Motors, which called the law a “raw deal.”

Michigan Governor Rick Snyder urged lawmakers after signing the bill to discuss whether the franchise system and the state’s ban on direct-to-consumer sales were good for state consumers. “We should always be willing to re-examine our business and regulatory practices with an eye toward improving the customer experience for our citizens and doing things in a more efficient and less costly fashion,” he said at the time.

In January, Elio Motors rolled into Michigan to show off its new autocycle. Booher introduced his measure after Elio announced plans to build its three-wheelers at a former General Motors Plan in Shreveport, La., starting next year. He also requested comment from the Federal Trade Commission.

The federal agency responded in an 11-page letter issued to Sen. Booher on May 7. In the regulator’s view, according to the letter, “the bill does not go far enough.” It was signed by Marina Lao, director of the Office of Policy Planning, Deborah Feinstein, director of the Bureau of Competition, and Francine Lafontaine, Director of the Bureau of Economics.

“Rather, the narrow scope of the bill would largely perpetuate the current law’s protectionism for independent franchised dealers, to the detriment of Michigan car buyers,” read the letter, in part. “FTC staff believes Michigan’s consumers would more fully benefit from a complete repeal of the prohibition on direct sales by all manufacturers, rather than the enactment of any limited, selected set of exceptions.”

The FTC did not offer an opinion on whether the franchise model was superior or inferior to direct-to-consumer sales, but it did urge Michigan lawmakers to allow consumers to choose which vehicle they want and how to buy them.

The letter also noted that Elio Motors has accepted more than 41,000 reservations for its vehicle as of March 29. The company, the letter continued, also plans to have Pep Boys handle warranty service, as Elio does not intend to establish a dealer network.

On May 11, the FTC posted a blog authored by Lao, Feinstein and Lafontaine. It called on other states to lift bans on direct-to-consumer sales of motor vehicles. “FTC staff supports the movement to allow for direct sales to consumers — not only Tesla and Elio, but for any company that decides to use that business model to distribute its products,” the blog postread, in part. “Blanket prohibitions on direct manufacturer sales to consumers are an anomaly within the larger economy.

“Protecting dealers from abuses by manufacturers does not justify a blanket prohibition like that in the current Michigan law, which extends to all vehicle manufactures, even those like Tesla and Elio who have no interest in entering into a franchise agreement with any dealer.”

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Second Bill Aimed at Reining in the CFPB Passes House by 401-2 Vote


WASHINGTON, D.C. — On the same day Sen. Elizabeth Warren (D-Mass.) called on Congress to impose further reforms on the financial sector that go beyond the Dodd-Frank Act, the House of Representatives passed a bill that aims to bring greater transparency to the Dodd-Frank-created Consumer Financial Protection Bureau (CFPB).

Speaking at the Levy Economics Institute’s 24th annual Hyman Minsky Conference on Wednesday, Warren laid out her view of the basic principles the government should follow when regulating financial markets — that “financial institutions shouldn’t be allowed to cheat people” and that “financial institutions shouldn’t be allowed to get the taxpayers to pick up their risks.”

While the Senator acknowledged that the Dodd-Frank Act has made progress on both fronts, she offered several proposals to further regulate financial markets, including lifting the dealer exemption from the Dodd-Frank Act, strengthening legal accountability for big financial firms and senior executives, breaking up the big banks and restricting the Fed’s emergency lending authority, changing the current tax laws that encourage excessive risk-taking and discourage long-term growth, and regulating what she called the “shadow banking sector.”

“The consumer agency’s early results have been good for consumers and good for the economy as a whole, but there’s more to be done,” Warren said of the CFPB, in part. “Right now, the auto loan market looks increasingly like the pre-crisis housing market, with good actors and bad actors mixed together.

“Auto dealers got a specific exemption from CFPB oversight, and it is no coincidence that auto loans are now the most troubled consumer financial product,” she added. “Congress should give the CFPB the authority it needs to supervise car loans …”

Meanwhile, a bill that aims to apply requirements of the Federal Advisory Committee Act (FACA) — a 1972 law designed to ensure that Congress and the public know what’s being discussed in government consumer advisory committees, among other requirements — to the CFPB was passed by a 401-to-two vote. The proposal, dubbed the Bureau Advisory Commission Transparency Act, was introduced in early March by U.S. Rep. Sean Duffy (R-Wis.).

“The bill ensures we as an American family can see what takes place at the CFPB — it makes complete sense,” Duffy said in support of his bill. “This is about making government work; making it accountable and transparent. That should start at these meetings.”

Duffy argued that despite the announcing it would comply with the FACA, the CFPB’s Credit Union and Community Bank Advisory Committees continue to meet behind closed doors.

The National Automobile Dealers Association has made similar arguments in its defense of the indirect auto finance market against the bureau’s targeting of dealer participation. In a recent press release in support of a separate House bill (H.R. 1737) that would rescind the bureau’s March 2013 guidance on dealer participation, the association noted that the CFPB’s lack of transparency prompted 91 member of Congress to request additional information from the agency “on how it arrived at the conclusions it used to justify its guidance bulletin.” The CFPB has yet to respond to that request, the NADA noted.

CFPB Director Richard Cordray has said the FACA does not apply to the bureau. Only the Central Intelligence Agency, the Federal Reserve and the Director of National Intelligence are exempted from the FACA’s provisions.

Duffy’s Bureau Advisory Commission Transparency Act now heads to the U.S. Senate for consideration. “… I think this is about making government work, making it accountable, making it transparent,” Duffy said prior to the House vote on H.R. 1265, “and that should start at least in the advisory meetings that our government takes part in.”

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Ga. Legislators Table Tesla Bill


ATLANTA — A subcommittee of the House Motor Vehicles Committee voted March 4 to table House Bill 393, which would have allowed Tesla to continue selling its electric vehicles directly to Georgia’s residents. The state’s dealers were behind the move to freeze the bill, The Atlanta Journal-Constitution reports.

Georgia law typically prohibits manufacturers from selling directly to consumers, except for up to 150 customer-made vehicles annually. Tesla sold nearly 500 cars in the state last year, mostly via online orders, which it says should not be included in the 150-vehicle cap. Dealers claim Tesla is violating state law by selling outside of the dealer system.

To read the full story, click here.

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President Once Again Takes Aim at Reinsurers


By: Gregory Arroyo

For the sixth time, President Barack Obama is taking aim at reinsurers, including in his fiscal-year 2016 budget language that would end some of the tax benefits they enjoy. Market insiders, however, believe the administration’s latest attempt to tax foreign reinsurers will once again receive little support from members of Congress.

In his budget presented on Monday, Feb. 2, the president proposed to make reinsurers pay a 14% one-off tax on cash held offshore and a 19% tax on future earnings. If passed, the proposal would make the cost of reinsurance, especially catastrophic coverage, more expensive.

According to insurance ratings company A.M. Best Co., the proposal is fielding strong opposition from member of Congress representing states that have considerable exposure to natural catastrophes. “Their concern is that a tax increase could lead to increased costs for (re)insurance coverage, or possibly a decrease in allocated (re)insurance capacity for less profitable risks,” the firm stated, in part. “Accordingly, any resolution of this issue could be years away.”

According to an economic study by the Tax Foundation’s Center of Federal Tax Policy, the president’s measure and similar legislation proposed by Reps. Richard Neal (D-Mass.) and Bill Pascrell (D-N.J.) and Sen. Robert Menendez (D-N.J) would cost the economy more than four dollars for every dollar raised. The study also projected that over the long term, the United States’ GDP would experience $1.35 billion in losses, which is approximately twice the revenue it would collect.

“The proposal is well thought out and serious, but ultimately mistaken on the policy merits,” the report states, in part. “While the deduction eliminated is neatly matched with income exclusion, there are substantial drawbacks to the proposal.”

In recent years, Democrats and Republicans have fought over ways to tax the huge stockpiles of cash held abroad by U.S. companies. Democrats want these companies to pay the current U.S. corporate tax rate of 35% on overseas profits, which Republicans have fought. However, Senator Rand Paul has signaled his support for a 6.5% tax.

“If anything were passed, it would probably be the 6.5% tax, which would still make the non-controlled foreign corps. a favorable alternative, especially for producers way above the small casualty insurance company threshold premium of $1.2 million per year,” noted Jim Smith, chairman of SouthwestRe. “I think the consensus is that with a Republican Congress and Democratic President, not much of anything is going to happen, and this proposed tax increase has even less chance than other bills.”

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