LenderLive broadens compliance solutions for vehicle finance


LenderLive Services, a division of LenderLive Holdings, announced on Tuesday that it will now provide expanded compliance services through a new line of business: LenderLive Compliance Solutions.

The company highlighted the new entity will offer both bundled and a la carte services to vehicle finance companies, credit unions, community and regional banks. Maria Moskver, general counsel and enterprise compliance officer for LenderLive, will lead LenderLive Compliance Solutions.

During the past two decades, LenderLive has developed significant in-house expertise in regulatory compliance, operational controls, systems and industry best practices. The company maintains one of the most extensive template libraries, including documents relating to vehicle default for all 50 states. The library contains pre- and post -repossession notices required by the Uniform Commercial Code and other federal and state laws, including right to cure notices, and notices of sales and deficiency.

LenderLive will continue to offer its Compliance Solutions bundled with fulfillment and document services to primarily enterprise clients.

In addition, LenderLive Compliance Solutions will now give vehicle finance companies the option to access its compliance solutions on an a-la-carte basis. This flexible approach can allow auto finance companies, credit unions, community and regional banks to supplement their internal compliance resources with LenderLive’s expertise. These services include:

• Ongoing regulatory monitoring and alerts for regulatory changes at the federal and state level.

• Access and use of LenderLive’s extensive state and federal template library.

• Ongoing template updates and review services.

• Client-focused webinars covering vehicle finance regulations, judicial developments and decisions.

• Custom research and consulting on regulatory compliance issues, including operational and best practice perspectives, to accelerate implementation times.

“Historically, financial institutions have turned to LenderLive for turnkey solutions that have reduced costs and kept them compliant,” said LenderLive chief executive officer Rob Clements, who joined the company on July 18 after more than two decades at EverBank Financial Corp.

“What we are doing now is leveraging the embedded expertise we’ve developed and providing financial institutions these services in two distinct ways, helping to create greater efficiencies based on specific needs,” Clements continued.

Clements arrived at LenderLive at the same time as John Surface was named as president and chief operating officer of the company. Clements and Surface also are a part of the company’s board of directors.

LenderLive founder Rick Seehausen moved into the role of vice chairman.

“After more than two decades leading EverBank, I’m incredibly excited to have this opportunity to use my experience in financial services to lead LenderLive during this next phase of its growth and evolution. LenderLive is well positioned to capitalize on the ever-changing dynamics of the financial services industry, and I am pleased to be working with my long-time colleague and friend, John Surface, to continue to build LenderLive for the future,” Clements said.

“Rick Seehausen has created a great company with a strong management team that has successfully grown in size, geography, product scope, and client base. We look forward to working with Rick in his role as vice chairman and founder to ensure a seamless transition and continued success,” Clements continued.

Surface added, “Over the last few years, LenderLive has diversified and strengthened its product offering, expanded its client base and built a business with considerable expansion possibilities. This is an ideal situation that allows us to bring our experience building and transforming EverBank to another ascending company with significant momentum and growth potential. I look forward to working with Rob and our new colleagues to continue that upward trend.”

After leading and growing LenderLive for nearly two decades, Seehausen has been interested in finding strong, reputable leadership to guide the company through the next chapter in its evolution.

“Over the past 18 years, we have built LenderLive into a leading provider of fulfillment and critical services for the financial services industry. I couldn’t be prouder of all that we have accomplished together, which has put the company in a great position to take the next step in its development,” Seehausen said.

“Given our ambitions to grow the company meaningfully, both organically and through acquisitions, it is clear that now is the right time to bring in new leadership expertise to guide the company to the next level,” he went on to say.

“Rob and John are well-respected, talented professionals who I trust will accelerate LenderLive’s upward trajectory and carry out the growth plans that we’ve put in place over the last few years,” Seehausen added.

3 more states added to Reynolds’ LAW F&I Library

DAYTON, Ohio - 

Now Reynolds and Reynolds only has seven states to go to cover all of the U.S. with resources from its LAW F&I Library — a comprehensive catalog of standardized, legally reviewed finance and insurance (F&I) documents for franchised dealers.

Reynolds recently released the LAW F&I Library into three more locations — Nebraska, New Hampshire and Rhode Island — lifting the company’s compliance footprint to 43 states. These documents can be used by dealership F&I offices to complete the vehicle sales process with buyers.

“We are pleased to announce the availability of the LAW F&I Library in Nebraska, New Hampshire and Rhode Island,” said Jerry Kirwan, senior vice president and general manager of Reynolds Document Services. "Dealers will continue to face growing expectations from consumers for a more engaging and smoother car-buying experience. The documents in the LAW Library are written in consumer-friendly language to help create a more efficient, transparent and understandable F&I process in every transaction.

“By increasing the efficiency of the F&I process, dealers can deliver a better customer experience for buyers at the dealership,” Kirwan continued.

Kirwan also noted LAW brand documents can help dealers keep pace with regulatory developments in automotive because the documents in the LAW F&I Library are regularly reviewed and updated for legal sufficiency. Reynolds' industry-leading forms specialists manage the review alongside Reynolds' outside legal partners.

In addition, the printed documents in the LAW F&I Library are available in digital format, which can help facilitate the conversion to laser-printed forms and e-contracting transactions. Reynolds Document Services maintains licensing agreements with all major providers of electronic F&I (e-F&I) solutions.

Now with Nebraska, New Hampshire and Rhode Island in the offering portfolio, other states where Reynolds resources are available include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia and Wyoming.

Wells Fargo to distribute $80M in refunds over insurance issue


Arriving within two weeks of reporting its auto financing originations dropped 45 percent year-over-year, Wells Fargo late on Thursday announced a plan to remediate auto finance customers of Wells Fargo Dealers Services who may have been financially harmed due to issues related to auto collateral protection insurance (CPI) policies.

Wells Fargo explained that it reviewed policies placed between 2012 and 2017 and identified approximately 570,000 customers who may have been impacted and will receive refunds and other payments as compensation.

In total, the bank said approximately $64 million of cash remediation will be sent to customers in the coming months, along with $16 million of account adjustments, for a total of approximately $80 million in remediation.

Starting in August, Wells Fargo said it will proactively reach out to impacted customers with letters and refund checks.

“In the fall of last year, our CEO and our entire leadership team committed to build a better bank and be transparent about those efforts,” said Franklin Codel, head of Wells Fargo Consumer Lending, which includes the dealer services unit. “Our actions over the past year show we are acting on this commitment.”

The moves arrived after Wells Fargo reported its auto finance originations came in at $4.5 billion during second quarter, down 17 percent from prior quarter and down 45 percent from prior year. The bank said “proactive steps to tighten underwriting standards resulted in lower origination volume.”

Whenever originated, Wells Fargo indicated that customers’ vehicle installment contracts require them to maintain comprehensive and collision physical damage insurance on behalf of the bank throughout the term of the contract. As permitted under those contracts, Wells Fargo would purchase CPI from a vendor on the customer’s behalf if there was no evidence — either from the customer or the insurance company — that the customer already had the required insurance.

The bank reiterated that CPI insurance protects against loss or damage to a vehicle serving as collateral to secure an installment contract and helps ensure that borrowers can pay for damages to a vehicle.

In response to customer concerns, Wells Fargo said that beginning last July it initiated a review of the CPI program and related third-party vendor practices. Based on the initial findings, the company discontinued its CPI program in September.

Since then, the company has gone through a comprehensive review using independent consultants to ensure the remediation plan it develops addresses customers’ situations in a thorough and thoughtful way.

Wells Fargo’s review determined that certain external vendor processes and internal controls were inadequate. As a result, customers may have been charged premiums for CPI even if they were paying for their own vehicle insurance, as required, and in some cases the CPI premiums may have contributed to a default that led to their vehicle’s repossession.

“We take full responsibility for our failure to appropriately manage the CPI program and are extremely sorry for any harm this caused our customers, who expect and deserve better from us,” Codel said. “Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole.”

Wells Fargo already has been providing CPI-related refunds to some customers and, beginning in August, will send letters and refund checks to customers who are due additional payments. The process is expected to be complete by the end of the year and is as follows:

—Approximately 490,000 customers had CPI placed for some or all of the time they had adequate vehicle insurance coverage of their own.

“We refunded the premium and interest for the duplicative coverage at the time the customer made us aware of their other insurance,” Wells Fargo officials said. “These customers will receive additional refunds of certain fees and some additional interest. Refunds for this group total approximately $25 million.

—In five states that have specific notification and disclosure requirements, approximately 60,000 customers did not receive complete disclosures from our vendor as required prior to CPI placement.

In these cases, even if CPI was required, customers will receive a refund including premiums, fees and interest. Refunds for this group total approximately $39 million.

—For approximately 20,000 customers, the additional costs of the CPI could have contributed to a default that resulted in the repossession of their vehicle.

Those customers will receive additional payments as compensation for the loss of their vehicle. The payment amount will depend on each customer’s situation and also will include payment above and beyond the actual financial harm as an expression of our regret for the situation. Refunds for this group total approximately $16 million.

For each of these categories, Wells Fargo added that the bank will also work with the credit bureaus to correct customers’ credit records, if applicable.

Also as an outcome of this review, Wells Fargo has taken additional steps to tighten oversight of third-party vendors in dealer services.

“This is consistent with a broader effort to strengthen how the dealer services business manages risk and serves customers, which has included other recently announced actions to centralize operational functions and provide more consistency for customers, tighten credit standards and implement a new structure,” Wells Fargo officials said.

Hudson Cook rolls out 7th edition of CARLAW F&I Desk Book

HANOVER, Md. -, publisher of automobile financing and leasing legal compliance services and part of the Hudson Cook portfolio, announced that it has updated its popular CARLAW F&I Legal Desk Book. Winner of the Axiom Business Book Award, the book gives readers 363 things to know about dealer finance laws and regulations. 

Now in its seventh edition, CARLAW F&I Legal Desk Book — 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. Authored by Thomas Hudson, Michael Benoit, Ralph Rohner and the attorneys at Hudson Cook, this new edition reflects the latest updates to the federal laws and regulations affecting F&I practices. 

“Formatted in a straightforward Q and A design, (the book) addresses many of the everyday compliance issues dealers face and includes links to the actual laws and regulations discussed in each chapter,” the publisher said.

The 390-page book is designated as the official textbook for the Association of Finance and Insurance Professionals’ Certified F&I Professional Program, and is available for $49.95 (plus shipping and handling) by going to this website.   

Republicans out to stop CFPB arbitration rule


House and Senate lawmakers wasted little time in using Congressional Review Act (CRA) authority to start an effort to stop the Consumer Financial Protection Bureau’s final rule prohibiting the use of class action waivers in arbitration clauses.

The CRA permits Congress to overturn an agency rule within 60 legislative days after an agency has submitted the rule to Congress, with a simple majority vote. The rule appeared in the Federal Register on Wednesday, meaning that barring a literal act of Congress, this regulation is effective on Sept. 18.

In the House, a resolution was sponsored by Rep. Keith Rothfus, a Pennsylvania Republican.

“As a matter of principle, policy and process, this anti-consumer rule should be thoroughly rejected by Congress, and I applaud Congressman Rothfus for leading the effort in the House to do just that,” said House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican.

“In the last election, the American people voted to drain the D.C. swamp of capricious, unaccountable bureaucrats who wish to control their lives. I can think of no better example of such bureaucrats than those at the CFPB. This CRA is a critical step towards fulfilling our promise to the American people and truly protecting consumers,” Hensarling said.

Sen. Mike Crapo, an Idaho Republican and chairman of the Senate Banking Committee, is leading the charge with his Republican colleagues on a resolution from Congress’ upper chamber.

“Members of Congress previously expressed concerns with the proposed version of the rulemaking – concerns that were not addressed in the final rule,” Crapo said. “The rule is based on a flawed study that leading scholars have criticized as biased and inadequate, noting that it could leave consumers worse off by removing access to an important dispute resolution tool.

“By ignoring requests from Congress to reexamine the rule and develop alternatives between the status quo and effectively eliminating arbitration, the CFPB has once again proven a lack of accountability,” he continued. “Given the problems with the study and the bureau’s failure to address significant concerns, it is not only appropriate but incumbent on Congress to vote to overturn this rule.”

Two leading banking industry organizations immediately cheered the lawmaker actions.

—From Rob Nichols, who is president and chief executive officer of the American Bankers Association: “We applaud … members of the Senate Banking and House Financial Services Committees for putting consumers first, and taking the first steps to overturn the CFPB’s misguided arbitration rule.

“In moving forward with the rule, the CFPB chose to ignore the results of its own study — which found that consumers fare far better in arbitration — and instead promote class action lawsuits designed to benefit trial lawyers at consumers’ expense. The CFPB’s study found that consumers receive nothing at all in nearly nine out of 10 class action lawsuits, while people who prevail in arbitration receive $5,389 on average compared to just $32.35 in litigation.

“In reality, the vast majority of disputes get resolved quickly and amicably without the need for arbitration or legal action. If arbitration disappears, the Bureau will force consumers to navigate an already overcrowded legal system where the only winners will be trial lawyers. We think our customers deserve better, and we urge lawmakers in both chambers of Congress to overturn this anti-consumer rule as soon as possible.”

—From Richard Hunt, who is president and CEO of the Consumer Bankers Association: “Arbitration has long provided a faster, more cost-effective and higher recovery means of addressing consumer disputes than class action lawsuits. The CFPB’s own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit.

“The real benefactors of the CFPB’s arbitration rule are not consumers, but trial lawyers who pocket over $1 million on average per class action lawsuit. Additionally, class action attorneys take on average 21 percent from their clients’ cash recoveries while some take as much as 63 percent. We encourage both the Senate and the House to move swiftly and overturn the CFPB’s anti-consumer arbitration rule.”

Meanwhile, consumer-facing organizations such as People’s Action expressed frustrations about what these lawmakers put in motion. Legacy organizations that created People’s Action a year ago include Alliance for a Just Society, Center for Health, Environment and Justice, Institute for America's Future, National People’s Action and USAction Education Fund.

“Once again Republicans in Congress have stood up tall and declared themselves firmly on the side of big banks and payday lenders, even when they break the law,” People’s Action said in a statement. “Today’s cynical, industry bought-and-paid-for move to invalidate the CFPB’s new arbitration rule, is possibly the most blatant anti-consumer move by Congress yet. 

“Forced arbitration strips consumers of the right to seek restitution from a judge when they are harmed. Forced arbitration is a proposition totally stacked in the predators’ favor,” the organization continued.

“Forced arbitration allows banks like Wells Fargo to keep massive law-breaking scams like their fraudulent account scandal out of the courts and the public’s eye, which they did for years before the CFPB stepped in and shut down the Wells Fargo account scheme. By trying to invalidate the CFPB’s arbitration rule, Congress wants to lock our families out of the courts and keep them from bringing big banks to justice,” People’s Action went on to say.

People’s Action added that “the public is not fooled,” while referencing a poll by Americans for Financial Reform found 78 percent of Americans want more Wall Street regulation.

“But Congressional Republicans aren’t listening to their voters, they’re listening to their donors,” People’s Action said.

A press conference hosted by the House Financial Services Committee can be viewed here or via the window at the top of this page.

New arbitration rule now on path to be in effect in September


Well, the clock now is officially running with regard to the Consumer Financial Protection Bureau’s final rule prohibiting the use of class action waivers in arbitration clauses.

The rule appeared in the Federal Register on Wednesday, meaning that barring a literal act of Congress, this regulation is effective on Sept. 18.

While the industry certainly is gearing up for significant pushback before that date, one of the CFPB’s fellow regulators questioned how the new policy is structured.

Last week, acting Comptroller of the Currency Keith Noreika delivered a letter to CFPB director Richard Cordray spelling out several questions similar to ones raised by organizations such as the American Financial Services Association and the National Independent Automobile Dealers Association. The Office of the Comptroller of the Currency (OCC) wanted the data the CFPB used to develop and support the final rule.

“The OCC has a mandate to ensure the safety and soundness of the federal banking system. A variety of OCC staff have reviewed the CFPB’s arbitration proposal from this perspective and have expressed concerns about its potential impact on the institutions that make up the federal banking system and its customers,” Noreika wrote in a letter dated July 10.

“As you know, arbitration can be an effective alternative dispute resolution mechanism that can provide better outcomes for consumers and financial service providers without the high costs associated with litigation,” Noreika continued. “As some have noted, the CFPB’s proposal may effectively end the use of arbitration in cases related to consumer financial products and services. Eliminating the use of this tool could result in less effective consumer protection and remedies, while simply enriching class-action lawyers.

“At the same time, the proposal may potentially decrease the products and services offered to consumers, while increasing their costs. The proposal also may force institutions to confront ‘potentially ruinous liability’ and to settle unmeritorious claims to mitigate the significant costs and risks associated with class-action law suits,” Noreika went on to say.

Noreika then delved into how the new rule could impact the banking system and how finance companies and dealerships could tap its financial resources.

“The increased cost associated with litigation and the loss of arbitration as a viable alternative dispute resolution mechanism could adversely affect reserves, capital, liquidity, and reputations of banks and thrifts, particularly community and midsize institutions,” he wrote.

“While staff have raised these questions, we can only answer them through shared analysis of your agency's data,” Noreika added.

Cordray complied with the OCC’s request, making arrangements to send data to the agency on Tuesday, based on a statement sent to SubPrime Auto Finance News.

“I appreciate director Cordray’s decision to share his agency’s data and analysis used to develop and support the final rule that will be published in the Federal Register,” Noreika said. “Consenting to share the data is important progress. 

“I look forward to working with the OCC staff to conduct an independent review of the data and analysis in a timely manner to answer my prudential concerns regarding what impact the final rule may have on the federal banking system,” he continued.

SubPrime Auto Finance News also obtained the letter Cordray wrote to Noreika and the OCC regarding the data request. Cordray began by asserting his position on what the OCC sought.

“First, let me be clear that we are happy to share the data underlying our rulemaking. I understand that our teams are in communication and we are in the process of assembling the data your staff has requested,” Cordray wrote.

Then Cordray delved into wondering why the OCC might have issues with this arbitration ban.

“I continue to fail to see any plausible basis for your claim that the arbitration rule could somehow affect the safety and soundness of the banking system. The economic analysis of the rule shows that its impact on the entire financial system (not just the banking system) is on the order of less than $1 billion per year,” Cordray wrote.

“Even if you think that estimate could be off by some amount, the banks alone made over $171 billion in profits last year,” he continued. “So on what conceivable basis can there be any legitimate argument that this rule poses a safety and soundness issue?”

Cordray also mentioned that Congress explicitly banned arbitration agreements in the mortgage market, “which is larger than all these other consumer finance markets combined. Yet nobody suggests that outcome poses a safety and soundness issue.

“So while you may disagree with the policy judgments for the rule, I question why it would be appropriate to distort the Financial Stability Oversight Council (FSOC) process to review a claim that is so plainly frivolous, when congressional and judicial forums are available to pursue such matters,” Cordray continued.

“Again, I would be interested to know more about what you view as the basis for your claim here. As for timing, I signed the final rule and we sent it to the Federal Register for publication before you raised these issues on July 10. Feel free to call me anytime to discuss these matters further,” Cordray went on state.

And as far as that act of Congress, House Financial Service Committee chairman Jeb Hensarling certainly appears poised to use lawmaker powers to stop this rule.

“This bureaucratic rule will harm American consumers but thrill class action trial attorneys,” said Hensarling, a Texas Republican. “As a matter of principle, policy and process, this anti-consumer rule should be thoroughly rejected by Congress under the Congressional Review Act.

“In the last election, the American people voted to drain the D.C. swamp of capricious, unaccountable bureaucrats who wish to control their lives,” Hensarling continued. “Congress must work with President Trump to make good on this mandate by fundamentally reforming the CFPB and dismantling the administrative state.”

The clash in Congress over this CFPB rule is likely to mirror so many other conflicts occurring on Capitol Hill nowadays.

“I applaud the Consumer Financial Protection Bureau for finalizing this important rule to clamp down on forced arbitration,” said Rep. Maxine Waters, a California Democrat and ranking member of the House Financial Services Committee.

“No consumer should ever be forced to sign away their legal rights in order to open a bank account, obtain a credit card, finance a car or obtain a private student loan so that they can pursue their education,” Waters continued. “The bureau’s rule is a critical step in stopping this problematic practice, ensuring that financial institutions are held accountable, and protecting consumers, including service members and veterans.”

5 reforms when FTC issues civil investigative demands


If a federal investigation into your dealership or finance company ever happens, perhaps here is some good news regarding how it might unfold.

Federal Trade Commission acting chairman Maureen Ohlhausen on Monday announced several internal process reforms in the agency’s Bureau of Consumer Protection that are designed to streamline information requests and improve transparency in commission investigations.

The FTC explained the reforms are part of Ohlhausen’s efforts to further the agency’s mission to protect consumers and promote competition without unduly burdening legitimate business activity.

“It is our duty to carry out our vital mission in the most effective and efficient way possible,” Ohlhausen said. “The changes announced today will reduce unnecessary and undue burdens of FTC investigations without compromising our ability to protect American consumers.”

This past April, Ohlhausen announced new internal working groups on agency reform and efficiency to improve processes and focus resources where they will do the most good for the public. As part of this initiative, Ohlhausen directed the Bureau of Consumer Protection to identify best practices to streamline information requests and improve transparency in investigations. 

The process reforms announced on Monday addressed civil investigative demands (CIDs) in consumer protection cases and include:

—Providing plain language descriptions of the CID process and developing business education materials to help small businesses understand how to comply

—Adding more detailed descriptions of the scope and purpose of investigations to give companies a better understanding of the information the agency seeks

—Where appropriate, limiting the relevant time periods to minimize undue burden on companies

—Where appropriate, significantly reducing the length and complexity of CID instructions for providing electronically stored data

—Where appropriate, increasing response times for CIDs (for example, often 21 days to 30 days for targets, and 14 days to 21 days for third parties) to improve the quality and timeliness of compliance by recipients.

In addition, to ensure companies are aware of the status of investigations, the FTC said it will adhere to its current practice of communicating with investigation targets concerning the status of investigations at least every six months after they comply with the CID.  

At least one compliance expert applauded the FTC’s actions. Steve Levine currently is chief legal and compliance officer at Ignite Consulting Partners.

"I’m encouraged by the acting chairman’s proposals for internal reform,” Levine said in an email to SubPrime Auto Finance News. “These will increase transparency and understanding and help small businesses meet the expectations of the FTC. 

“I’m especially glad to see emphasis on plain language and business education as CIDs can take a small business by surprise and they are often unprepared to respond as quickly as is required,” continued Levine, who also has been chief legal and compliance officer of AutoStar Solutions, Sigma Payment Solutions and SecureClose as well as general counsel for Regional Acceptance Corp.

The FTC noted Ohlhausen initiated this project in part to address concerns raised by members of Congress and the American Bar Association Antitrust Section’s Presidential Transition Report about the investigational burdens on legitimate companies.

“The agency continues to consider other reforms,” the FTC said.

Gauging the future of CFPB’s arbitration decision

CARY, N.C. - 

A broad collection of industry representatives already is gearing up to generate a significant pushback against the Consumer Financial Protection Bureau, which earlier this week spelled out a new rule prohibiting the use of class action waivers in arbitration clauses.

And a pair of legal practitioners reached by SubPrime Auto Finance News gauged how successful these groups might be in persuading Congress to squash this bureau mandate. Randy Henrick is an auto dealer compliance expert who offers compliance consulting services to dealers at He served for 12 years as Dealertrack’s lead regulatory and compliance attorney.

“Despite CFPB director Richard Cordray’s fanfare in announcing the rule for the alleged protection of consumers (even though the CFPB’s own study revealed that it is class action plaintiffs’ lawyers who make windfalls on fees in class actions with class members getting little of the final ante), I’m betting the rule will never take effect,” Henrick wrote in a blog post on his website.

Henrick touched on not only the furor shared by organizations such as the American Financial Services Association and the National Independent Automobile Dealers Association, he also mentioned how Republican lawmakers and perhaps President Trump could be dismissing Cordray from his post as his current term is more than half expired.

“Already, auto industry and consumer finance lobbying groups have indicated they will lobby their Congress people to use the Congressional Review Act (CRA) or enact other legislation to undo the arbitration rule. They, too, could bring or join lawsuits against it that could delay its effect until after Cordray leaves. I think the likelihood of the rule surviving Corday are not very high,” Henrick wrote.

In October 2015, the bureau published an outline of the proposals under consideration and convened a Small Business Review Panel to gather feedback from small companies. Besides consulting with small business representatives, the bureau sought comments from the public, consumer groups, industry and other interested parties before continuing with the rulemaking.

Last May, the bureau issued a proposed rule that included a request for public comment. The CFPB said it received more than 110,000 comments.

“The final rule is pretty consistent with the proposed rule they issued a while back, so from a substantive perspective, it’s no surprise,” Hudson Cook chairman Michael Benoit told SubPrime Auto Finance News. “I think politics was the only thing in the way of issuing the final rule (well, that and wading through 110,000 public comments).  

“I think the director probably feels the odds are good that the current Republican infighting and focus on healthcare and tax reform will serve to keep the Congress distracted and uninclined to use their veto power under the Congressional Review Act. That remains to be seen,” Benoit continued.

“But in any event, now is as good a time as any to put this rule out and it’s probably important to the director that it come out on his watch,” he went on to say.

SubPrime Auto Finance News then asked about how much work is ahead for the auto finance industry to comply with this new rule.

“There are a number of avenues of resistance for the industry,” Benoit said. “First, it can lobby Congress to use its CRA authority to invalidate the rule (it’s a simple majority vote, so you only need 51 votes in the Senate). 

“Second, you can attack the rule as inconsistent with the mandate Congress gave in Dodd-Frank, i.e., Congress required in Dodd-Frank that any arbitration rule be ‘in the public interest’ and ‘for the protection of consumers,’” he continued.

“Arguably, the CFPB’s own study reveals that the rule is neither,” Benoit added.

Benoit also touched on other elements that might be a path to challenge this new CFPB rule.

“You can also argue that the rule is inconsistent with the aforementioned study in that Dodd-Frank requires any arbitration rule be consistent with the arbitration study the CFPB was mandated to undertake,” he said. “There is plenty of data in the study that would argue against the rule being published. You could also make constitutional arguments, e.g., Congress impermissibly delegated legislative authority to the executive branch when it authorized the CFPB to write a rule that conflicts with existing legislation, i.e., the Federal Arbitration Act. 

“The argument is that only Congress can amend a federal statute. I’m sure there are other avenues of attack as well,” Benoit went on to say.

So if the rule actually does come into full effect, Benoit projected how the industry could continue.

“I would think ‘compliance’ with the rule is pretty simple, i.e., use agreements without a class action waiver in the arbitration clause. That’s a fairly easy fix for forms companies and institutions,” he said.

“The bigger problem for industry is determining how much increase in credit pricing is necessary to cover the greater liability that comes with class action exposure,” Benoit concluded.

Why industry is ‘disappointed’ with CFPB’s arbitration rule

CARY, N.C. - 

Clearly the industry is “disappointed” that the Consumer Financial Protection Bureau earlier this week issued a final rule prohibiting the use of class action waivers in arbitration clauses. The American Financial Services Association, the National Independent Automobile Dealers Association and the American Bankers Association all used that specific adjective when relaying their reaction to the CFPB’s actions.

And the Consumer Bankers Association also didn’t cheer the decision made by the bureau, which announced a new rule to ban dealerships and auto finance companies from using mandatory arbitration clauses “to deny groups of people their day in court.”

AFSA asserted the CFPB has finalized a rule on arbitration that ignores its own research and harms consumers, while enriching plaintiff’s attorneys.

“We are disappointed that the bureau has decided to move forward with a final rule,” said Bill Himpler, executive vice president with AFSA. “The bureau has ignored its mandate under the Dodd-Frank Wall Street Reform and Consumer Protection Act to limit arbitration only if such a prohibition is in the public interest and for the protection of consumers.”

AFSA, along with many other trade associations, has submitted a comment letter on the CFPB’s proposed arbitration rule, advocating for alterations in the best interest of both consumers and the industry. 

“Numerous reports, including the CFPB’s own study, show the value that consumers derive from arbitration, especially when compared to class-action lawsuits. The CFPB’s study clearly demonstrates that the winner in class-action litigation is almost always the plaintiff’s attorneys, who pocket millions of dollars and leave the consumer with little to no financial compensation,” Himpler said.

NIADA pointed out that the CFPB’s study on arbitration found consumers receive on average more than $5,000 in arbitration hearings compared to roughly $32 in class-action litigation — if they receive anything at all.

“We are disappointed that the bureau has decided to adopt this ill-conceived rule,” NIADA chief executive officer Steve Jordan said. “Today’s action shows the CFPB has decided to put the interests of class-action lawyers above those of the very consumers the bureau is mandated to protect.

“Arbitration has proven to be a faster, less expensive and more effective means of resolving consumer disputes than class-action lawsuits. And consumers who receive an award in arbitration almost always receive more than they would in a class-action lawsuit, a point proven by the CFPB’s own research,” Jordan continued.

“This rule will force small businesses to bear additional costs in defending class-action litigation, particularly meritless suits,” Jordan went on to say. “Those costs will ultimately be borne by consumers, and in the case of those who are credit-challenged, it could prove to be too much.”

ABA president and CEO Rob Nichols also cited the disparity in monies consumers often receive via arbitration versus litigation. Nichols also agreed with the premise that attorneys are likely to receive the greatest windfall via the bureau’s decision.

“We’re disappointed that the CFPB has chosen to put class action lawyers — rather than consumers — first with today’s final rule,” Nichols said. “Banks resolve the overwhelming majority of disputes quickly and amicably, long before they get to court or arbitration. The Bureau’s own study found that arbitration has significant benefits over litigation in general and class actions in particular. Arbitration is a convenient, efficient and fair method of resolving disputes at a fraction of the cost of expensive litigation, which helps keep costs down for all consumers.

“Despite acknowledging these benefits in its own study, the Bureau has chosen to write a rule that would essentially eliminate arbitration — and force consumers into court — by requiring companies to face a flood of attorney-driven class action lawsuits from which consumers receive virtually nothing. Under this final rule, consumers lose,” he continued.

“As Congress considers changes to the CFPB’s structure and accountability, we also urge lawmakers to overturn this rulemaking,” Nichols went on to say.

NIADA senior vice president of legal and government affairs Shaun Petersen said the association will work with congressional leaders to address the arbitration issue legislatively.

“From the outset of this rulemaking process, NIADA has voiced concern about the poor policy reflected in this proposal to both the CFPB and to members of Congress,” Petersen said. “As Congress considers CFPB reform, we will be urging lawmakers to overturn this anti-consumer rule.”

No matter the organization, CBA president and CEO Richard Hunt spelled out the argument representatives are likely to make before federal lawmakers.

“Arbitration has long provided a faster, better and more cost-effective means of addressing consumer disputes than litigation or class action lawsuits. The CFPB’s own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit,” Hunt said.

“The real benefactors of the CFPB’s arbitration rule are not consumers but trial lawyers, who pocket over $1 million on average per class action lawsuit. By only using fuzzy math is the CFPB able to interpret these figures as favorable to consumers. Given the longstanding benefits of arbitration, we encourage Congress to move swiftly and overturn this anti-consumer rule,” Hunt went on to say.

Editor’s note: SubPrime Auto Finance News reached out to multiple legal experts to collect their observations on how the industry can move forward. Their assessment will be published in a future report.

New CFPB rule bans mandatory arbitration


Check those installment contracts. Arbitration appears to be no longer an option for dealerships and finance companies to settle conflicts with consumers.

On Monday, the Consumer Financial Protection Bureau announced a new rule to ban companies from using mandatory arbitration clauses “to deny groups of people their day in court.” Bureau officials insisted many consumer financial products accounts have arbitration clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing.

The CFPB explained that “by forcing consumers to give up or go it alone — usually over small amounts — companies can sidestep the court system, avoid big refunds and continue harmful practices.” The CFPB contends its new rule will deter wrongdoing by restoring consumers’ right to join together to pursue justice and relief through group lawsuits.

“Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong,” CFPB director Richard Cordray said.

“These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together,” Cordray went on to say.

The bureau calculated that hundreds of millions of contracts for consumer financial products and services have included mandatory arbitration clauses. These clauses typically state that either the company or the consumer can require that disputes between them be resolved by privately appointed individuals (arbitrators) except for individual cases brought in small claims court.

While these clauses can block any lawsuit, the CPFB believes that companies almost exclusively use them to block group lawsuits, which are also known as “class action” lawsuits. With group lawsuits, a few consumers can pursue relief on behalf of everyone who has been harmed by a company’s practices.

Bureau officials insisted that almost all mandatory arbitration clauses “force” each harmed consumer to pursue individual claims against the company, no matter how many consumers are injured by the same conduct. 

“However, consumers almost never spend the time or money to pursue formal claims when the amounts at stake are small,” the bureau said.

The Dodd-Frank Wall Street Reform and Consumer Protection Act required the CFPB to study the use of mandatory arbitration clauses in consumer financial markets. Congress also authorized the bureau to issue regulations that are in the public interest, that are for the protection of consumers, and which are based on findings that are consistent with the bureau’s study of arbitration.

Released in March 2015, officials recapped that the study showed that credit card issuers representing more than half of all credit card debt and banks representing 44 percent of insured deposits used mandatory arbitration clauses. Yet three out of four consumers the bureau surveyed did not know whether their credit card agreement had an arbitration clause.

“These clauses are not only common and unknown; they are also bad for consumers,” bureau officials said.

By blocking group lawsuits, the CFPB insisted that companies are able to:

—Deny consumers their day in court: The study showed that few consumers ever bring — or consider bringing — individual actions against their financial service providers either in court or in arbitration. Only about 2 percent of consumers with credit cards surveyed said they would consult an attorney or consider formal legal action to resolve a small-dollar dispute. As a result, the real effect of mandatory arbitration clauses is to insulate companies from most legal proceedings altogether.

—Avoid paying out big refunds: Individual actions get less overall relief for consumers than group lawsuits because companies do not have to provide relief to everyone harmed. According to the study, group lawsuits succeed in bringing hundreds of millions of dollars in relief to millions of consumers each year. The study showed that more than 34 million consumers received payments, and that $1 billion was paid out to harmed consumers over the five-year period studied. Conversely, in the roughly 1,000 cases in the two years that were studied, arbitrators awarded a combined total of about $360,000 in relief to 78 consumers.

—Continue harmful practices: Individual actions might recoup previous individual losses, but they do nothing to stop the harm from happening again or to others. Resolving group lawsuits often requires companies to not only pay everyone back, but also change their conduct moving forward. This saves countless consumers the pain and expense of experiencing the same harm. The Bureau’s study found that in 53 group settlements covering over 106 million consumers, companies agreed to change their business practices or implement new compliance programs. Without group lawsuits, private citizens have almost no way, on their own, to stop companies from pursuing profitable practices that may violate the law.

CFPB arbitration rule

Officials explained the CFPB rule restores consumers’ right to file or join group lawsuits. By so doing, the rule also deters companies from “violating the law.”

The bureau continued by stating, “When companies know they are more likely to be held accountable by consumers for any misconduct, they are less likely to engage in unlawful practices that can cause harm. Further, public attention on the practices of one company can more broadly influence their business practices and those of other companies.”

Under the rule, the CFPB pointed out that companies can still include arbitration clauses in their contracts. But companies subject to the rule may not use arbitration clauses to stop consumers from being part of a group action. The rule includes specific language that companies will need to use if they include an arbitration clause in a new contract.

Officials went on to emphasize the rule also makes the individual arbitration process more transparent by requiring companies to submit to the CFPB certain records, including initial claims and counterclaims, answers to these claims and counterclaims, and awards issued in arbitration.

The bureau said it will collect correspondence companies receive from arbitration administrators regarding a company’s non-payment of arbitration fees and its failure to follow the arbitrator’s fairness standards.

“Gathering these materials will enable the CFPB to better understand and monitor arbitration, including whether the process itself is fair,” officials said. “The materials must be submitted with appropriate redactions of personal information."

The bureau intends to publish these redacted materials on its website beginning in July 2019.

The new CFPB rule applies to the major markets for consumer financial products and services overseen by the bureau, including those that lend money, store money, and move or exchange money.

Congress already prohibits arbitration agreements in the largest market that the bureau oversees — the residential mortgage market.

In the Military Lending Act, Congress also has prohibited such agreements in many forms of credit extended to servicemembers and their families. The rule’s exemptions include employers when offering consumer financial products or services for employees as an employee benefit; entities regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission, which have their own arbitration rules; broker dealers and investment advisers overseen by state regulators; and state and tribal governments that have sovereign immunity from private lawsuits.

In October 2015, the bureau published an outline of the proposals under consideration and convened a Small Business Review Panel to gather feedback from small companies. Besides consulting with small business representatives, the bureau sought comments from the public, consumer groups, industry and other interested parties before continuing with the rulemaking.

Last May, the bureau issued a proposed rule that included a request for public comment. The CFPB said it received more than 110,000 comments.

The rule’s effective date is 60 days following publication in the Federal Register and applies to contracts entered into more than 180 days after that.

More information about the CFPB’s arbitration rule is available