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CFPB Interest In BHPH Dealers Growing Steadily

Maybe you heard it spoken in a 20 group meeting or around the lunch table at the auction. There's one buy-here, pay-here operator telling another, "I'm not worried about the CFPB. I'm just a small guy with 20 cars on my lot and less than 1,000 active accounts. I'm sure those guys will go chase the big fish.”

For BHPH dealers who think that way, Rick Hackett offered a strong warning. The Consumer Financial Protection Bureau is intensifying its regulatory aim at this industry. And Hackett should know; he spent about two years at the CFPB before officially joining Hudson Cook in March.

“The bureau focuses on the risk of a product to consumers,” Hackett said during a panel discussion during the National Conference hosted by the National Alliance of Buy-Here, Pay-Here Dealers last month in Las Vegas.

“Buy-here, pay-here is viewed as a high risk product because it’s expensive and it’s given to folks whose financial lives are relatively volatile, and therefore, it’s a risky situation from the perspective of consumer outcomes,” continued Hackett, who formerly was the head of the Office of Installment and Liquidity Lending Markets in the Division of Research, Markets and Regulations at the CFPB. His responsibilities at the bureau included advising all of the regulator’s divisions with respect to market information and policy issues in the installment and specialty lending areas, including vehicle finance, student lending and payday lending.

Hackett acknowledged a small BHPH operator might have avoided significant CFPB scrutiny when the bureau first began to issue enforcement actions against large industry players such as Ally Financial and US Bank. Now, times are definitely changing.

“Two years ago, I would say you could stay of the radar by having a low profile and being small,” Hackett said. “Tat might have been true with the original activity at the bureau when it focused on the largest players in this space. Now, I’m pretty sure that’s not true anymore that being small will keep your radar profile down.”

A host of NABD Conference attendees all pondered the same question. What triggered this response at the CFPB?

“Complaints are really important to the CFPB, and service member complaints are 10 times more important,” Hackett said.

Hackett continued that point by sharing two other theories.

“What we’re seeing from CFPB consent decrees is they will typically look for a technical non-compliance point of leverage — a Truth in Lending mistake that happens every single time you made a contract — in order to then leverage the consenting party into agreeing that other things won’t happen anymore,” he said.

“Unless you’re talking with large companies that have to make a securities disclosure, it’s really hard to figure out exactly what’s going on out there,” Hackett continued. “I’ve talked to some lawyers who have seen (civil investigation demands) for small buy-here, pay-here dealers. That suggests to me that the initial process has changed and smaller companies are being looked at. My hypothesis is that these involve locations close to military bases or some other reason why there’s a crosshair of risky product in special populations.”

In the short-term, Hackett offered a recommendation.

“The more your technical compliance is buttoned up, the more likely it is that it will survive an investigation with very limited damage,” he said.

Editor’s Note: Future issues of BHPH Report will offer more analysis and guidance from industry experts so operators can enhance their compliance processes.

Compliance Dialogue Highlights NABD Academy & National Conference Agendas

NIADA Makes Position on Debt Collection Known to CFPB

The National Independent Automobile Dealers Association made sure to craft a detailed response when the Consumer Financial Protection Bureau allowed time for comments regarding possible changes to federal rules governing debt collection. Regulators sought the input as they consider the option of changing rules that enforce the Fair Debt Collection Practices Act.

NIADA regulatory counsel Shaun Petersen expressed the association’s opposition to rules designed to regulate creditors such as buy-here, pay-here dealers in the same way as third-party collectors. Petersen noted that when Congress passed McGladrey the FDCPA in 1977, he said lawmakers deliberately excluded creditors from the law’s requirements.

“In November the CFPB released what they call an advanced notice of proposed rule making (ANPR). In essence, what the ANPR is the agency is alerting the world, ‘We’re thinking about doing rules in the arena, and here are some of the questions that we’re asking internally and externally.’ They ask for interested parties to respond back based upon these questions relative to them,” Peterson said in an interview with BHPH Report.

“There were certainly things included in that group of information that wasn’t germane to us as buy-here, pay here dealers, but there were other things being said that were very much of interest to us,” he continued. “Our process, certainly we get input from our board.We get some of their thoughts. We talked to other members of the association, in particular buy-here, pay-here folks, on this particular issue.

“We got some good input from dealers that would be affected by any change that the CFPB would make if they started to change things that impacted creditors collecting on their own debts. That was our primary concern,” Petersen added.

Addressing Specific CFPB Questions

NIADA’s comments covered nearly a dozen specif c questions offered by the CFPB. Petersen of en referenced language contained in the FDCPA to articulate the association’s concerns.

“Congress believed the risk of reputational harm to the creditor is sufficient to deter the creditor from engaging in the types of debt collection practices the FDCPA intended to prohibit,” Petersen wrote to the CFPB. “NIADA believed then and continues to believe that Congress’s logic is sound. Dealers collecting their own debt are deeply concerned about their reputation." Petersen explained that BHPH dealers “will often go to great lengths to ensure a positive customer experience,” including spending their own money to repair customers’ vehicles because “experience has shown that often, if a customer’s car breaks down at any point while a loan balance exists, the risk that the customer ceases to make the required installment payments increases dramatically.Thus, dealers invest heavily in the postsale customer relationship as an incentive to repayment.”

In addition, Petersen said the CFPB provided no evidence or statistics that showed first-party auto loans — or any auto loans — are a source of debt collection concerns, or even a significant source of debt collection activity.

NIADA provided input on other issues, as well, opposing unnecessary burdens such as a debt verification process for first-party auto lenders, who have a direct relationship with the customers from which they are collecting.

Meeting with Bureau Officials

Along with the comments, Petersen along with NIADA executive vice president Steve Jordan visited with CFPB officials earlier this month. Petersen described the encounter as quite positive.

“We were very clear that we’re very much interested in working with them in anything that they do in the debt-collection sphere, in the military relations sphere and the hot issues that were communicated at (the Vehicle Finance Conference hosted by the American Financial Services Association) with the fair lending issues and disparate impact,” Petersen said.

“We want to be a tool and a resource for the bureau and what they’re doing to gather information about the industry and certainly as they make decisions that would impact the regulations of the industry and especially the enforcement of those regulations on the industry.We want to be abreast of those issues and to let them know we can be a resource for them,” he went on to say.

Signal of What Might Be Ahead

At the same time, while no official rule change proposal has been made by the CFPB, Petersen is hoping BHPH dealers will maintain current practices and be aware that they might have to be altered depending on what federal regulators do.

“I feel confident that the buy-here, pay-here industry is aware of the ‘common-sense’ things you could do when collecting on your own debt that could be construed as abusive, things like threatening people with criminal action. I would hope that the vast majority of them would understand those are practices that nobody condones,” Petersen said.

“What we are hopeful for and what we’re spending a lot of time as an association is to educate and this response to rule making,” he continued. “Look, this is something the CFPB is just collecting comments on right now.There’s been no proposed rule. There’s been no statutory change in regulation. They’re just gathering information. But this is the first step.

“This should be the blinking light on the horizon saying here’s where we’re going and it’s something to be aware of,” Petersen went on to say. “I guess I almost liken it to that this is the lighthouse and the ship in the ocean sees the lighthouse. The details aren’t there until you get a little closer. Then you get the light along the shore to point out the details of the rocks. But certainly the advanced notice of proposed rule making is that lighthouse where I can see something on the horizon is coming. The next step is to see if the CFPB decides to go down that road and propose specific rules in very detailed language to say this is how they’re going to regulate.

Petersen indicated to BHPH Report that There is no specific timetable as to when the CFPB may propose rules changes regarding the FDCPA. For now, he is waiting just like the rest of NIADA and the BHPH industry.

“I’m sure the CFPB will take whatever appropriate time they feel they need to consider comments that have been submitted,” said Petersen, who added that more than 300 comment submission were made by consumers, industry groups, service providers and other interested parties.

“They certainly have some study time.We’ll see if they make any proposed rule changes. We certainly hope they don’t,” he added.