Tag Archive | "Tom Hudson"

Tom Hudson Joins Dealer Summit Roster

TAMPA, Fla. — Prominent consumer finance attorney Thomas B. Hudson has agreed to speak at the upcoming Dealer Summit, organizers said Wednesday. The event will take place May 3–5, 2016, at the Sheraton Riverwalk Tampa Hotel. Hudson’s session, “Subprime and BHPH Dealers: How Regulators Have Changed Your Business Model,” will begin at 2 p.m. on Wednesday, May 4.

“Tom Hudson is universally admired as a dealer advocate and unwavering voice of reason,” said Greg Goebel, president of DealerStrong. “We couldn’t have asked for a better speaker to tackle this important topic.”

Hudson is a partner in the Washington, D.C., office of Hudson Cook LLP and one of the automotive industry’s foremost legal minds. He a frequent speaker and prolific writer, authoring a number of legal guides and publications and serving as a regular contributor to Auto Dealer Today and F&I and Showroom magazines.

Hudson is expected to analyze recent enforcement actions by federal regulators and their effect on automotive finance, including special finance and the buy-here, pay-here (BHPH) segment. Dealers must be willing to adapt to a “new business landscape” and change their business models, he warned, or face legal action that could cost them their livelihoods.

“There are two kinds of dealers in the world — those who know that the regulatory ground has shifted beneath them and those who don’t,” Hudson said. “Dealers need to understand and conform to the new rules or get out of the business before the regulators force them out.”

Registration for Dealer Summit is open at the event’s website. Dealers who register by April 1 will enjoy a $100 early-bird discount. They will also have access to several pre-show activities, including F&I Think Tank and Jim Ziegler’s Profit Masters.

For information about exhibition and sponsorship opportunities, contact show chair David Gesualdo via email hidden; JavaScript is required or at 727-947-4027.

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Members of Congress Call on CFPB to Eliminate Arbitration Agreements

SAINT PAUL, Minn. — More than 50 members of Congress, led by U.S. Sen. Al Franken (D-Minn.) and Rep. Hank Johnson (D-Ga.), signed a letter asking the Consumer Financial Protection Bureau (CFPB) to issue new rules that would eliminate the use of forced arbitration clauses in consumer financial service contracts.

The letter, submitted to CFPB Director Richard Cordray on May 21, commends the bureau for its study of arbitration clauses, but asks the CFPB to take its work in that arena one step further. A similar appeal by more than 100 groups was made to the regulator in late March.

“In total, the study conducted by CFPB at Congress’s request roundly confirms that individuals unknowingly sign away their rights through forced arbitration agreements, which do not reduce consumer costs for financial services,” 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.”

On March 10, the CFPB released the results of its study of pre-dispute arbitration clauses in consumer finance markets. It indicated that more than 75% of consumers don’t know whether they are subject to an arbitration clause in their agreements with their financial service providers. The report also concluded that it is common for arbitration clauses to be invoked to block class action lawsuits.

At a field hearing coinciding with the report’s release, Cordray told stakeholders that the results of the study would “provide the basis for important policy decisions that the Consumer Bureau will have to make in this area.”

But not everyone is taking these findings at face value. In an April article, F&I and Showroom legal columnist and Hudson Cook LLP Partner Tom Hudson criticized the CFPB’s report for its “gaping holes” — such as failing to address the growing consumer-friendless of arbitration clauses.

“In fact, it isn’t unusual to see clauses that provide for the payment by the creditor of some or all of 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 initialed. The study offers no insight on whether these best practices might change any of its conclusions.

“There’s 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.”

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The Bigger Compliance Puzzle

When it comes to compliance, most of the talk the last several months has centered on the Consumer Financial Protection Bureau (CFPB) and the guidance it issued. The guidance does not directly impact dealers – but it does affect the lenders dealers rely on, and it has certainly changed the way many lenders look at the contracts sent to them for approval.

However the CFPB, and the changes being slowly enacted because of it, aren’t the only regulations dealers need to be aware of. An important part of any agents’ value-added services is to make sure dealers are not neglecting all the other aspects of compliance for which they will be held accountable.

First, and most importantly in many ways, is to make sure there is someone at the dealership itself who has taken ownership of compliance in all aspects of the dealership. Before even identifying any holes in the compliance strategy, there first has to be someone who is responsible for them. “Every dealer should have its own compliance officer,” said Terry O’Loughlin, director of compliance, Integrated Document Solutions, Reynolds and Reynolds. “Agents should encourage the dealer to have someone who is appointed to that position. That person should have responsibility to oversee all compliance efforts.”

He went on to note, “There should be a business plan just for compliance – something a dealer can do cheaply if they appoint someone. It could be their controller, it could be the general manager, or it could be someone else in the office, but someone has to be charged with that responsibility.”

While it is still not a mainstream concept, many dealers are starting to take that advice to heart. “I can tell you that, at least in my experience so far, a good number of dealers are beginning to stir,” said Tom Hudson, chairman, Hudson Cook LLP. “For example, I visited with a large dealership in North Carolina recently; they had commissioned a compliance expert to compile a handbook, when in the past they had never had one. They also appointed their own compliance manager, which is something we’re seeing a little more frequently as well.”

“The dealer needs to know who should have compliance knowledge, then make sure they have it,” said Dave Robertson, executive director, AFIP. He believes, however, that the knowledge shouldn’t be concentrated in one person, but that everyone who deals with contracts needs to be educated. “If people in the dealership are required to do their job relative to regulations – such as the people who write contracts – they must be knowledgeable about them. They can’t be required to follow the rules if they don’t know them.”

While he believes it is important for everyone to be aware of the rules, he does, however, advocate a system of audits to ensure they are following through – rules aren’t any use if they are not being followed. “The dealer must have an audit program where there is a systematic, organized audit,” Robertson said. “They have to make sure the rules are actually being put into practice. There needs to be a regular audit of F&I and deal jackets to make sure everything the staff have learned is, in fact, being followed.”

Once a dealer has appointed their compliance manager, and given them the authority, they need to do audits and, most importantly, follow up with the appropriate consequences when violations are found. So, what should the audit focus on?

O’Loughlin said that the place to start and his first very strong recommendation would be to have every dealer review their Safe-Guards Rule and Red Flags Rule programs, as well as review and update privacy policies. Dealers also need to ensure they are in compliance with the updated Consumer Protection Act which, last October, changed how and when consumers can be contacted by businesses. “If dealers are contacting their customer base, they need to make sure they have an updated authorization agreement so they can send e-mails, call them on the phone, text them, send them faxes or initiate any kind of communication – electronic or otherwise,” he said. “My suspicion is that many dealers haven’t taken this step. There have been cases where dealers called a customer on their cell phones and incurred costs to that customer – and anyone who does that is liable for those costs. This is something dealers want to reevaluate if they have any ongoing reminder campaigns.”

“I had one dealer come to me looking for a deal jacket review,” said Hudson. “I said happy to do it, but what about your underwriting manual, collections manual, red flags manual, etc.? He said ‘we don’t have that’. It is a federal requirement – dealers have to do that, but a lot of dealers are struggling putting together the internal compliance arrangements they need. Big dealerships have been at it for a while, but as you scale down in size, compliance efforts are more wanting. The smallest dealerships still have a long way to go.”

Robertson advised that one of the first places dealers should start when revamping their compliance policy is to seek training. The government, he said, has several comprehensive training programs on specific topics, and then there are a variety of third party programs, like his own AFIP certification for F&I managers. “That is a big component of a dealer’s program,” he stressed again. “People who need the knowledge, must have the knowledge.”

Hudson agreed, noting that if he were a small dealer, there are a few resources he would be pursuing right now. “Go to your state association and lean hard on the director,” he said. “Tell them, look you need to be developing this stuff for all of us, to spread the cost over all the smaller dealerships. They need to develop materials all the small dealers can adapt, and I haven’t seen any sign of that yet.”

Another form O’Loughlin believes dealers should re-evaluate is their arbitration agreements. He noted that the government recently convened a hearing on arbitration clauses, and part of the mandate for the panel is to look at how those clauses apply to consumers. “The expectation is that they’re going to deny the application of arbitration in the future,” he noted. “They haven’t done it yet, but in the meantime, there have been a series of cases that have changed arbitration agreements to be more balanced between the dealer and consumer. If your dealers haven’t looked at them in a while, they should do so now. And they should follow the federal Arbitration Act, rather than state law, is my recommendation.”

O’Loughlin’s final advice? “Start the new year by taking a look at all dealer documentation. Make sure everything is all marked with a current effective date, and that the most current groups of forms are in the library, so F&I managers aren’t using something out of date. It’s not a happy task, but starting on a new year, some forms do expire.”

Hudson wrapped up by quoting O’Loughlin. “Terry has an interesting concept that I agree with – we have been on panels together – and he is fond of saying that anything worth doing is worth doing poorly. That always makes everyone sit up. Dealers all have the obligation to put together privacy manuals, and things like that. The dealer who attempts to do something like that themselves, who sits down, studies the rules, and creates a policy that is homemade, and not bought from a professional – the dealer who makes a stab at doing something – is better off than the dealer who didn’t do anything at all. If the compliance police come in, and ask for a manual on privacy, the dealer who has one that’s not great because they did it themselves is way ahead of the dealer who didn’t do anything. Even a poorly done compliance system is better than none at all – effort counts, it really does.”

For Robertson, it all comes down to treating customers fairly and honestly, and then compliance just becomes a natural fit. “The dealer has to say, can I make a living treating people fairly and doing it right?” he noted. “And if they can’t, there’s a fatal flaw in the business plan. I’ve been in the business for 40 years, and I’ve had them tell me you can’t sell cars without screening, but they have done it wrong for so long, they don’t know how to do it right. For the dealer, though, it’s crucial that if there is ever an opportunity, always do the right thing. I’ve seen that in 50% of lawsuits, if dealer had handled it properly the first time, it wouldn’t have gotten to that point. I don’t want anyone to have something of mine they don’t want to have – if I sold you something you don’t want you’ll do whatever it takes to make sure you don’t keep it. But if the dealer did the right thing at the first opportunity, it wouldn’t have been a problem.”

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An Interview With Tom Hudson of Hudson Cook LLP

There are few figures as recognizable in the automotive retail and finance industry as Thomas B. Hudson, a founding partner of Hudson Cook LLP. Hudson’s work as an attorney, author of legislation and his series of widely read legal guidebooks has put him in the center of the action for every major development affecting dealers for the past several decades. In 2009, in recognition of more than 35 years of service, Hudson received the American College of Consumer Financial Services Lawyers’ lifetime achievement award.

Today, in addition to his work with the firm, its 50 attorneys and their many clients, Hudson contributes to several of the industry’s leading publications, including F&I and Showroom magazine, and appears as a speaker at conferences and other events throughout the year. AE caught up with Hudson to hear the latest about his work and the compliance issues dealers are grappling with on a daily basis.

Tell us about the firm and its place in the industry.

As for the firm, it was founded in 1997 by me, Robert Cook and eight other lawyers, six of whom came with Robert and me from the Venable firm. Venable was, at the time, a 350-lawyer firm based in D.C. and Baltimore. Robert and I had run the Consumer Financial Services Practice at Venable since 1989. Before that, he and I spent three years at the D.C. office of a New York firm, Willkie, Farr and Gallagher.

I started out in 1973, after graduating from Georgetown Law School, with a Baltimore-based firm, Semmes, Bowen and Semmes, where the practice that our firm now does originated. That practice, which we call “consumer financial services,” involves all the credit products and services that have a consumer on one side and a creditor on the other. Examples are housing finance, auto sales, finance and leasing, credit cards, student loans, boat and RV financing, unsecured lending, insurance premium finance lending, title lending, payday lending – any transaction involving credit extended to a consumer.

Our practice involves compliance. We advise creditors about how to engage in these programs without running afoul of state or federal law. That’s all we do. We don’t litigate (at least not often), we don’t do employment or corporate work – just the compliance stuff.

Who are your clients?

We represent dealers, banks, finance companies, companies that sell F&I products, investment bankers, trade associations and anyone else with a presence in the consumer financial services marketplace.

What is the greatest regulatory challenge dealers face today?

Right this very moment, dealers aren’t looking at a legal landscape that’s much different from the one they were looking at before Dodd-Frank. The new Consumer Financial Protection Bureau hasn’t rolled out a lot of new regulations yet, nor has the Federal Trade Commission.

That isn’t to say that things haven’t changed, though. The roundtables held last year by the FTC focused on abuses, or alleged abuses, by dealers, and the FTC and the Bureau are both becoming active. The activity isn’t adopting new rules, though, but rather involves enforcing old rules that have been on the books for ages.

Examples are the FTC’s enforcement actions on negative equity financing and data breaches. We’ll see a lot more of that. Until the roundtables, the FTC had been pretty quiet regarding dealers. Now I think they feel that they are in competition with the Bureau to see who can be the strictest cop on the block.

The efforts of the agencies have increased to a noticeable degree. If as a kid, you ever played marbles, you’ll remember that you either played for fun, or played for “keepers,” which meant that you got to go home with the other guy’s marbles if you won. The federal agencies are now playing for keepers.

How has the industry changed in the past five years, and how do expect it to change in the near future?

The Dodd-Frank Act was the biggest thing to happen in the consumer financial services industry since the federal Truth in Lending Act of 1968. Few dealers appreciate the fact that they will now not be able to fly under the radar. Compliance with federal laws is no longer an option for those willing to bet that they won’t get hit with an enforcement action. The Bureau, especially, will be a powerful new force, with a big budget and a plan to clean up the industry and drive the bad actors out of business.

The resulting increased cost of compliance will lead to consolidation, as smaller dealers realize that they simply can’t afford the cost of implementing the sorts of compliance efforts that will be required going forward – the unpaved lot on the corner needs pretty much the same compliance program that CarMax has, and that’s going to cause small operators to throw in the towel. Only dealers with enough volume to spread the cost over a lot of sales will survive.

How do you like to spend your time off?

I read (a lot), I walk (a lot), I write (a lot), I garden when I’m in Maryland, where we have our “main” house, and I fish and crab when I’m at our place in Pawleys Island, S.C. We adopt older golden retrievers from the rescue organizations. We are now working on our seventh and eighth rescues.

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Attorney Tom Hudson and Team Update Award-Winning Book for Auto Dealers

HANOVER – CounselorLibrary.com, the publisher of automobile financing and leasing legal compliance services, has updated its popular F&I Legal Desk Book, winner of the Axiom Business Book Award.  The book, by Thomas B. Hudson and the lawyers of Hudson Cook LLP, gives readers 360 things to know about auto dealer finance laws and regulations.

CARLAW® F&I Legal Desk Book (3rd edition)The Answer Book for Finance and Insurance Professionals,” presents a law-by-law, regulation-by-regulation guide through the legal maze that dealers face every day.  The 3rd Edition features updated information in many chapters and a completely new section on the Dodd – Frank Wall Street Reform and Consumer Protection Act.  Each chapter was authored by a Hudson Cook lawyer whose day-in, day-out practice involves that chapter’s subject matter.  The format for each chapter is a straightforward “Q and A,” designed to address the everyday compliance issues dealers face.  The book includes Internet links through CounselorLibrary.com, so readers can find the actual laws and regulations discussed in each chapter.

The “F&I Legal Desk Book(3rd edition)” continues to be designated as the Official Text Book for the Association of Finance and Insurance Professionals’ Certified F&I Professional Program.

The “F&I Legal Desk Book” is 365 pages and costs $49.95 plus shipping and handling. To order, go to www.counselorlibrary.com/ (Products tab).

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