National Automobile Dealers Association chairman Forrest McConnell reiterated his arguments this week against points made by federal regulators, especially the Consumer Financial Protection Bureau. McConnell emphasized in remarks to the Automotive Press Association in Detroit that dealers compete fiercely against each other on vehicle pricing, financing and service, which reduces costs for consumers.
“Competing with the dealer down the street or on the Internet benefits car buyers across the nation,” McConnell said.
As a percentage of total sales in the new, used and service/parts departments, NADA declared that net pretax profit at franchised dealerships was just 2.2 percent in 2013.
“Our manufacturers benefit from a high return on capital in making vehicles, as opposed to the low margin of selling them, because dealers bear the cost and risks of these investments — at virtually no cost to the manufacturer,” he said.
McConnell, a Honda and Acura dealer from Montgomery, Ala., said there’s a simple reason why manufacturers use dealers to sell new vehicles.
“The franchised dealer network is the most competitive, the most cost-effective and most pro-consumer model for buying and selling new cars and trucks,” McConnell said.
“If manufacturers sold directly to customers, there would be zero competition in pricing vehicles, parts and service,” he continued. “Car buyers would be stuck paying the full sticker price — because there would be no ‘same-brand dealership’ to shop and compare prices.”
McConnell added that dealer-assisted financing, which is optional, increases competition for buyers, and the retail finance rate offered by dealers is often more competitive than a bank or credit union.
“We work with multiple lenders who compete for the dealers’ business by offering us low financing rates,” McConnell said.
“The bottom line is this: dealer-assisted financing provides car buyers with the ability to get a discounted auto rate from the dealer,” he continued. “And low rates mean lower car payments for our customers. But the government is trying to take away a customer’s right to get that discount.”
NADA maintained that the controversy with the CFPB has been ongoing since March of last year when the agency issued its guidance on indirect auto lending. McConnell and the association contend the bureau took the wrong direction by attempting to eliminate the flexibility of dealers to discount financing rates offered to their customers by pressuring finance companies to switch to a flat-fee compensation system.
“We can all agree on one thing: We are all against discrimination. There’s no room for it in this business or any other business,” McConnell said.
But what we can’t agree on is the CFPB’s insistence on a flat-fee model — which eliminates a customer’s right to get a discount,” he continued. “Right now, dealers are incentivized to select the lender that offers us the lowest available rate. The current system works because it forces banks to compete and offer dealers low rates to get their business.
"Next, dealers have to discount those rates to beat the competition or meet a customer’s budget. Those two competitive factors drive rates lower for our customers,” McConnell went on to say.
Then the NADA chairman asked the gathering in the Motor City a question.
“What happens to customers if the current system changes to flat fees? Lenders will want to pay higher flats to get business. Not lower interest rates. That would give dealers the incentive to select the lender that offers the highest flat fee. That doesn’t help car buyers save money,” McConnell said.
Back in January, NADA developed an optional Fair Credit Compliance Policy and Program for dealerships, which was released in partnership with the National Association of Minority Automobile Dealers and the American International Automobile Dealers Association.
“We’ve come up with a solution to address all the risks the CFPB talks about — a dealer following the program sets a standard starting point for dealer reserve,” McConnell said.
“This gives a dealer who adopts the program the ability to discount the finance rate when there is a legitimate business reason — like helping a customer fit a monthly payment plan into his or her budget,” he continued.
McConnell closed his appearance by mentioning that since March of last year the industry — from dealers to finance companies — and Congress have worked to bring greater transparency and accountability to the CFPB.
“There haven’t been many issues lately where members of Congress have seen eye to eye,” McConnell said. “But the CFPB’s flawed position is one of them.”
Last month, Reps. Ed Perlmutter (D-Colo.) and Marlin Stutzman (R-Ind.) introduced H.R. 5403, a bipartisan bill to nullify the CFPB’s auto lending guidance. So far, NADA indicated 69 Republicans and 40 Democrats in the U.S. House of Representatives support the dealer’s ability to discount the rate for our customers.
Vendor Transparency Solutions and Weltman, Weinberg & Reis are joining forces again for another free webinar — this time focusing on what the Consumer Financial Protection Bureau’s larger participant rule proposal means for nonbanks in the auto financing market.
Partner Michael Dougherty plans to ask two important questions: Are you now regulated by the CFPB, and, if so, what does it mean?
“The CFPB recently announced its proposal for defining who is a larger participant in the automobile financing market,” Dougherty said. “The proposal sets forth who is now a CFPB regulated entity and defines the scope of potential oversight and regulation.
“The CFPB proposal addresses issues surrounding buy rates and any discretionary dealer markups to the buy rate. It further sets forth the roadmap for lenders to use when establishing their dealer management compliance system especially as it relates to the ECOA and UDAAP,” he continued.
“The comment period for this proposal will end quickly, so understanding how this new proposed regulation will affect your business model is of great and urgent importance,” Dougherty went on to say.
The one-hour free webinar is set to begin at 2 p.m. EDT on Friday.
Finance company executives can complete the registration for the session here.
It’s been nearly two weeks since the Consumer Financial Protection Bureau revealed its proposed changes for what is classified as a larger participant in auto financing. More than half the time is remaining in the 60-day comment period the CFPB has in place. Still, auto finance legal expert Michael Thurman isn’t expecting dramatic changes from what the bureau outlined during its field hearing last month.
“I’m aware of no obstacle that would prevent the CFPB from implementing this rule,” Thurman told SubPrime Auto Finance News. “The way the process works, the agency will take comments from all sources including consumers, the industry and legislators. But at the end of the day, the CFPB has spent a significant amount of time making its determination of what an appropriate level is to set the barrier for being a larger participant. The agency has the authority to do that under the Dodd-Frank Act. I don’t expect any substantial changes to the rule from what we’re seeing. In fact, I’d say there’s a good chance that the rule we’re seeing now will be the rule that’s adopted.
“That doesn’t mean the agency won’t consider the comments that are made, but I don’t see them making any significant alterations in for example the definitional changes their proposing or the calculation by which they’re going to determine larger participants of this industry,” continued Thurman, a former partner at Loeb & Loeb who opened his own firm in Pasadena, Calif., earlier this year.
To recap, if a finance company makes, acquires, or refinances 10,000 or more vehicle loans or leases in a year, the CFPB is looking to become that operation’s primary regulator stemming from a proposal disclosed during a bureau event on Sept. 18 in Indianapolis.
The bureau said this proposed rule would generally allow the CFPB to supervise nonbank auto finance companies to ensure they are complying with federal consumer financial law. Bureau officials estimated that about 38 auto finance companies would be subject to this new oversight.
Organizations such as the American Financial Services Association didn’t need 60 days to make a comment. Senior vice president Bill Himpler was part of a panel discussion during last month’s field hearing and made concerns known immediately.
“AFSA remains concerned that the bureau continues to issue larger participant rules that capture market participants that, for lack of a better term, are not large by any stretch of the imagination,” Himpler said.
“Many of the market players that will be subject to the proposed rule have well below 1 percent of market share. According to Experian data, companies below the top 30 have less than a half a percentage point of market share in vehicle finance,” he continued.
“Above all, the vehicle finance industry wants to comply with the law and the regulations that are set forth by the bureau, as well as continue to play a positive role in the American consumer experience. Industry stands ready to work with the CFPB to develop regulations that protect consumers and simultaneously ensure that Americans have access to safe and affordable consumer credit,” he went on to say.
Despite the objections, Thurman acknowledged the latest moves the CFPB made were not unexpected.
“It’s something that we’ve been looking for since late in the spring when the CFPB indicated it would heading in this direction. And even going farther back to 2012 when it initially announced the direction it was heading with respect to indirect lending and its fair-lending practices in the fact that they view it as applicable to loans that are being done by dealers that are ultimately financed by auto lenders,” he said.
Thurman did mention one expectation he said wasn’t met by the CFPB in its latest action. He was looking for an addition section to the bureau’s supervisory manual that would assist finance companies in knowing exactly what regulatory concerns are covered with respect to auto lending. Thurman suggested the CFPB will continue to focus on several areas of its current manual that are connected to unfair, deceptive or abusive acts or practices (UDAAP), credit reporting, fair lending, debt collection and truth in lending.
“It would have been great for the industry if the agency had come out with a specific set of guidelines that accompany this announcement because then I think they can focus even further on what they need to be ready for an examination,” Thurman said.
Without more specifics, Thurman recommended that finance companies continue to enhance their compliance programs.
“Hopefully, they all have been already bracing for not only this announcement, but also bracing for supervision by the agency even in the form of subpoenas or civil investigative demands. Obviously the auto finance industry has known for some time that the CFPB has some jurisdiction over the industry. The only new news here is which companies, in particular, will be subject to onsite examinations on a periodic or regular basis,” Thurman said.
Thurman speculated that larger finance companies likely have been dissecting the CFPB supervision manual, spending a significant amount of time in discussions with their attorneys and compliance staff, building out procedures to make sure they comply with the CFPB rules.
“The difficulty may be for some of the companies that are closer to the line, but my hunch is that’s a relatively small number of companies that have been identified for supervision. My hunch is every company in that group probably assumed they were going to be included in this process,” Thurman said.
“I don’t expect any of them will slow down on their efforts to build out their compliance management systems,” he continued. “The fact that this announcement has been made tells everyone that the time is coming very soon when they’re actually regulators coming to visit them. The efforts that they have been doing are going to have to be as far along as they can be.
“If I were going to give advice to companies that find themselves within the group that will be subject to onsite examinations, I would tell them to keep the pedal to the metal in building out their compliance management systems and continue doing the things they’ve been doing for the last few months and years,” Thurman went on to say. “Don’t slow down in terms of preparations for when the CFPB actually shows up at their door.”
A way finance company executives can keep the “pedal to the metal” as Thurman indicated is by attending this year’s SubPrime Forum during the opening days of Used Car Week.
One of the presentations during the SubPrime Forum — an event orchestrated in partnership with the National Automotive Finance Association — is from the team at McGladrey, which is gathering together strategy recommendations to enhance regulatory compliance moves executives might have already put in place.
McGladrey will be conducting a session during the SubPrime Forum where attendees can learn how to implement, maintain and provide governance oversight for their compliance management system based on the latest mandates issued by the bureau, which is taking a hard stance on this issue based on the enforcement actions the agency has taken during the past year.
Attendees will leave the Red Rock Casino, Resort and Spa in Las Vegas with a plan of action for when — not if — the CFPB arrives ready to conduct a thorough investigation.
The SubPrime Forum begins Nov. 10 with registration and a welcome reception before launching into a full day of events on Nov. 11, followed by a half-day of sessions on Nov. 12.
For a full schedule of events, visit http://subprime.autoremarketing.com/agenda, and be sure to register for the event by Oct. 10 to save $200 off of your registration fee. And once you’re registered, don’t forget to make your hotel reservations at the Red Rock Casino, Resort and Spa in Las Vegas. The exclusive conference rate of $195/night is available only through Oct. 17.
U.S. Sen. Mike Crapo, the ranking member of the upper chamber’s Banking Committee, recently received his requested analysis of the Consumer Financial Protection Bureau by the Government Accountability Office, confirming his apprehensions about what the bureau is doing.
Crapo highlighted the GAO’s comprehensive study confirmed the CFPB is collecting financial data on up to 600 million consumer credit card accounts, and that the bureau’s privacy and security controls for data collection should be enhanced to reduce the risk of improper collection, use, or release of consumer financial data.
The Idaho Republican indicated the report documents CFPB’s large-scale collection of consumer financial data from 2012 through 2014, confirms the existence of personal identifiers in CFPB’s data collections, and raises the concern that CFPB lacks written policies and procedures for data privacy and protection.
“The CFPB’s massive data collection effort is an unwarranted, unwelcome intrusion into the private financial lives of millions of Americans,” Crapo said.
“This GAO report confirms what the Bureau would not — that it has been collecting information on up to 600 million American financial accounts, and it does not have the proper safeguards in place to protect the information it is collecting,” he continued.
“At a time when data and identity-related crimes are at an all-time high, the last thing the American people need is one more federal agency collecting their private financial information,” he went on to say.
After discovering the CFPB was spending millions of dollars to collect information on millions of Americans’ personal credit card, banking, mortgage and student loan information, Crapo began to raise concerns with the CFPB’s “big data” collection.
Crapo believes the bureau repeatedly failed to provide sufficient information regarding the data collection, so he went to the non-partisan GAO to investigate, requesting an official review of the CFPB’s data collection efforts.
The senator mentioned five other key findings from the GAO report:
— CFPB has access to account-level credit card data on between 546-596 million consumer accounts on a monthly basis. This represents consumer data covering 87 percent of the credit card market.
— CFPB conducts large-scale collections on consumer financial data, including data with personal identifiers. Data includes one-time and monthly collections on automobile sales, consumer credit report information, credit cards, credit scores, mortgages, student loans and others.
— CFPB lacks written policies and procedures for data privacy. GAO noted that the CFPB “has not developed standard policies and written procedures to document the practices it uses for anonymizing data, including clarifying how data sensitivity will be assessed.” For example, the CFPB retained sensitive data in two data collections reviewed by GAO, including religious data.
— GAO found weaknesses in the bureau’s ability to assess risks and vulnerabilities associated with data security and protection of consumer financial information. Both the GAO and the CFPB’s Inspector General previously found similar weaknesses in a separate report released last year.
— GAO noted that the CFPB and Office of the Comptroller of the Currency should submit its credit card data collection plan for consultation and approval by the Office of Management and Budget, as required by law. Without such review, officials indicated CFPB and OCC lack reasonable assurance that these collections are in compliance with the law.
“There are many outstanding questions and concerns following this report,” Crapo said.
“For example, it is still unclear exactly what information the CFPB is collecting, how they are using it, and whether it can be easily reverse-engineered to identify an individual,” he continued. “I consider these to be very serious concerns at the very agency that was supposed to watch out for consumers, not watch them.”
The Consumer Financial Protection Bureau is insistent that finance companies have documentation verifying the federal compliance of their service providers. For managers that use Allied Finance Adjusters member repossession agencies to find and recover vehicles, a new partnership with Vendor Transparency Solutions is aimed at enhancing what a finance company can show federal regulators.
For some time, AFA maintained its compliance module on its website that assisted its members in sharing compliance documents with finance companies. On Wednesday, AFA and VTS finalized a partnership that designed to take that process many steps higher.
With the introduction of VTS Basic, AFA can now offer our members a platform geared to reach a higher level of compliance. This new software can provide members with more functionality and features, including the VTS Marketing Module, VTS Complaint Handling Module and VTS Continued Education Module to give members exposure to finance companies that utilize VTS Professionals.
“Since the inception of the CFPB, AFA has positioned its members to be the most educated operators in the recovery industry. Working with VTS gives AFA proven tools to show the lending community that AFA and its members are taking compliance seriously,” said James Osselburn, second vice president of Allied Finance Adjusters.
Through the partnership, AFA members can receive exclusive discounts on all VTS services, which consist of VTS Professional, VTS Basic and ongoing continued education.
Additionally, AFA has contracted VTS to perform the site inspections and other due diligence required to become a new member of Allied Finance Adjusters. AFA officials insisted that utilizing VTS to perform these inspections is important when it comes to vetting new members as “the high caliber of VTS will insure to the lending institutions that the members of AFA are held to a higher standard.”
New members of AFA will receive an even greater discount on VTS Basic, should they choose to participate.
Allied Finance Adjusters is one of the leaders among national trade associations in CFPB compliance training and education through its relationship with Recovery Specialist Insurance Group (RSIG). To date, 90 percent of AFA members have completed this training.
Vendor Transparency Solutions president Max Pineiro explained this partnership demonstrates AFA's commitment to be the largest group of bonded, compliant service providers in the nation, which can create new revenue opportunities for members by creating a one-stop shop for all financial institutions, banks, credit unions, law firms and replevin brokers.
Pineiro added the AFA Education Committee will be working closely alongside VTS on its continuing education module to introduce new ideas on education for AFA members and VTS subscribers.
“There is no question that mastering compliance requires a team effort. That team includes the financial institutions, their contracted service providers and the leaders of the industry trade associations that assist their members through valuable tools and benefits,” Pineiro said.
“The most valuable tools today are those that are closely related to compliance and compliance monitoring,” he continued.
“We at VTS applaud Allied Finance Adjusters for taking on the leadership role in the industry and assuring that asset recovery businesses throughout the country have access to the necessary tools needed to achieve compliance," Pineiro went on to say.
The National Automotive Finance Association in cooperation with Hudson Cook is gathering together four of the most knowledgeable experts in auto finance industry compliance for a free webinar.
The session titled, “Auto Finance: Federal Supervision and Enforcement,” is set for noon EST on Oct. 14. The webinar is scheduled to include the following Hudson Cook partners:
— Lucy Morris, recent deputy enforcement director in the Division of Supervision, Enforcement, and Fair Lending at the Consumer Financial Protection Bureau
— Joel Winston, former associate director of the Federal Trade Commission’s Division of Financial Practices
— Rick Hackett, former CFPB assistant director in the Office of Installment and Liquidity Lending Markets
— Michael Benoit, senior partner in Hudson Cook’s Automotive Finance Group and a member of the firm's regulatory enforcement team
Morris recently joined Hudson Cook after three years with the CFPB where she was responsible for overseeing investigations and litigation relating to consumer financial products and services. Prior to her time at the CFPB, Morris was an assistant director and senior attorney in the Division of Financial Practices at the Federal Trade Commission.
Winston's responsibilities at the FTC focused on the oversight of civil enforcement actions and investigations, including litigation and leading settlement negotiations.
Hackett's responsibilities at the CFPB included leading and managing a team responsible for advising the bureau on auto financing market information and policy issues.
“The Consumer Financial Protection Bureau's new larger participant rule for auto finance will subject larger auto finance companies to supervision by the CFPB,” NAF Association executive director Jack Tracey said. Those attending the webinar will learn about the new rule and what auto finance companies can expect to experience in a supervisory exam.
“The webinar will also cover the CFPB's enforcement activities and how its enforcement authority complements its new supervisory authority,” Tracey continued. “The panel of experts will provide insight into the exam process and discuss recent enforcement actions and their implications for the auto financing industry.”
Finance company executives, dealership F&I managers and other interested individuals can register for the free webinar here.
The ongoing debate over how the F&I process should unfold inflamed again in the heart of the Midwest.
As consumer advocates and attorneys made scathing accusations about unscrupulous activities that amounted to practices such as payment packing, yo-yo financing and spot delivery, representatives from the American Financial Services Association and the National Automobile Dealers Association pushed back against those charges and more during the latest auto finance field hearing hosted by the Consumer Financial Protection Bureau.
CFPB director Richard Cordray opened the event by recapping the series of moves the bureau made in advance of the event at Hine Hall Auditorium on the Indiana University – Purdue University Indianapolis campus. Cordray reiterated his stance about how vehicle purchases — especially transactions involving consumers with subprime credit histories — must be completed in a transparent way that complies with federal regulations.
“It is important that the financing of these purchases does not come at an unjustifiably high cost,” Cordray said. “The Consumer Bureau will continue to work to ensure that people can get fair access to credit, on terms that reflect their actual creditworthiness, that marketing is honest and factual, that the terms of the deal can be made plain and readily understood, that companies are not furnishing wrong information about their customers, and that people are treated with respect and dignity in the debt collection process.”
Following Cordray’s prepared remarks, the event moved on to a panel discussion that included about a dozen individuals, including AFSA executive vice president Bill Himpler and Paul Metrey, who is chief regulatory counsel for financial services, privacy and tax for NADA. The remainder of the panel also included Consumer Bankers Association general counsel Steve Zeisel, CFPB officials, Center for Responsible Lending senior vice president Chris Kukla and Chrystal Ratcliffe, president of the Greater Indianapolis Chapter of the National Association for the Advancement of Colored People (NAACP).
In structuring questions, regulators often referenced the rise in subprime lending, even though finance companies’ appetite for subprime risk appears to be waning, judging by the softening trends Experian Automotive earlier this summer. According to its latest State of the Automotive Finance Market report, Experian determined that the percentage of new-vehicle loans to subprime and deep subprime borrowers began to level off in the second quarter.
“There may be an uptick in lending to subprime customers, but that’s not necessarily a bad thing,” Himpler said. “We need to remember that credit is an opportunity. What the uptick demonstrates is that following the crisis lenders are willing to, based on performance, go deeper to help folks who need access to transportation to get to jobs. Nobody would question extensions of credit to someone who is carrying around a (Black American Express) card, but in the subprime space we don’t have any problem talking about wanting to ratchet back because they may be taken advantage of.
"At the same time as regulators you need to be diligent to be sure that they’re treated fairly. But we do need to remember we’re a credit economy going all the way back before our country was founded. Credit is a good thing. It helps people build wealth, get jobs and we can’t lose sight of that,” Himpler went on to say.
In their prepared remarks, both Himpler and Metrey emphasized how much AFSA, NADA and their members are against discrimination of any kind, regardless of credit status, ethnicity or gender. But the final hearing attendee given an opportunity to make a two-minute statement offered one of the most predatory accusations of the entire two-hour event.
Judith Fox now is a clinical professor of law at the University of Notre Dame School of Law and also runs the Economic Justice Clinic for impoverished consumers in Indiana. While her biography and resume on the school website doesn’t list specific organizations, it does state that prior to attending law school, Fox was a loan officer at banks in both Pennsylvania and Indiana.
“I became a lawyer because before I was a lawyer I bought loan paper from dealers,” Fox told the audience. “We used to have a game in our office that when we looked at the interest rate that came in to guess the race and sex of the buyer. And we were never wrong.
“If it was over 20 percent, it was an African American woman. If it was 7 percent, it was a white male. That’s why I became a lawyer,” she continued.
“If you want to know what consumers need to know when they go into a dealer, they think they’re going into a loan broker who is doing the best they can to get them the cheapest rate. They need to know who their loan was shopped to, what rates they were offered, what rates you’re giving. Dealers need to make money, and I understand that. But the consumer needs to know they could have gotten a 7 percent loan, but you’re going to give it to me for 12 percent,” Fox went on to say
Incidents like what Fox alleged are part of the reason why Cordray and the CFPB are targeting dealer markup so strongly.
“And in our supervisory experience, we have found that when an indirect lender has a policy allowing the dealer to use its discretion to mark up the loan without regard to the actual credit profile of the consumer, and to benefit from that markup, the risk of discrimination increases,” Cordray said.
“Whether this is done openly and expressly, on the one hand, or silently and implicitly, on the other hand, does not change the fact that the consumer has been financially disadvantaged in violation of the law. Unbeknownst to the consumer, the discretion to charge distinctly different rates can dramatically increase the risk of unlawful discrimination,” he continued.
Whether dealer markups continue or flat fees become the norm, Metrey attempted to emphasize that neither choice eliminates the potential for dealer discretion.
“As long as dealers have multiple finance source partners who are competing with each other, you’re not going to eliminate dealer discretion,” Metrey said. “You may shift the exercise of it, but whether it’s on the buy rate, the wholesale buy rate or flat fees, or anything else, as long as you have multiple finance sources competing for the dealers’ business and the dealer decides who is the one they send the paper to, you have an exercise in discretion.
“In this arena, our hope is that bureau will not focus its effort on the false hope that you can eliminate discretion,” he added.
Earlier during the hearing, Metrey also attempted to explain what the auto financing industry thrives already thanks to the structures currently in place.
“Once you really look at how (auto finance) compares to other asset classes, if you look at asset-backed securities, look at delinquencies, look at defaults, it is exceeding strong because it’s based on an extremely strong underwriting model,” Metrey said. “They’re not looking at speculation that the collateral will increase in value. You’re looking primarily at the repayment ability of the borrower. They’re honed in on precisely the right factor and the results are reflective of that fact.
“It is a highly competitive marketplace, and that’s a good and healthy thing,” he went on to say. “It benefits customers. It requires businesses that want to survive in that market to deliver superior customer service, to provide very competitively priced products and to have a very strong efficiency of operations.”
Reynolds and Reynolds this week launched of the Reynolds LAW Ohio F&I Library, a comprehensive catalog of standardized, legally reviewed finance and insurance documents available to dealers in the Buckeye State.
Officials highlighted the Reynolds LAW brand library of forms was developed jointly through a partnership between Reynolds Document Services and the Ohio Automobile Dealers Association (OADA).
"After partnering recently with a number of other state and regional dealer associations in the creation of LAW forms libraries, Reynolds is pleased to partner with the OADA in the same venture," said Jerry Kirwan, senior vice president and general manager of Reynolds Document Services.
“The OADA and our other dealer association partners understand a LAW forms library can support a comprehensive retail management approach for dealers and can help dealers improve the car-buying experience for their customers,” Kirwan continued.
Kirwan insisted changing regulations for automobile dealers have increased the pressure to improve dealers' F&I operations. As a result, he noted dealers are seeking trusted ways to help their business meet current compliancy standards, improve efficiency and lower risk, and stay up-to-date with customer service trends.
The LAW Ohio F&I Library of documents was created and will be maintained by the combined expertise of Reynolds director of compliance Terry O'Loughlin, Reynolds’ AFIP certified compliance legal specialists and the OADA.
"The creation of the Ohio LAW library aligns with our interests of providing our members with credible ways to improve dealership operations, as well as improve the experience for their customers," said Tim Doran, president of the OADA. "We are pleased to partner with Reynolds in this endeavor."
Based in Dublin, Ohio, the OADA is a political, economic and educational association created for Ohio dealers, by Ohio dealers, and managed by Ohio dealers, with the mission to protect the interests and increase the value of automotive dealerships throughout the state. Visit the OADA online at www.oada.com.
Reynolds' LAW forms are available in all 50 states and Washington, D.C., and have been endorsed by a number of state automobile dealers associations and leading automotive finance institutions.
The flagship product of the LAW brand is the Reynolds LAW 553 Universal Retail Sale Contract. The Reynolds LAW 553 is available in a variety of languages and is regularly reviewed by industry experts to help keep pace with new legislative and regulatory developments.
Reynolds Document Services offers similar LAW brand forms libraries to dealers in a number of states, including California, Pennsylvania, West Virginia and Virginia.
In an exclusive interview with SubPrime Auto Finance News, Hudson Cook partner and former assistant director at the Consumer Financial Protection Bureau Rick Hackett offered quick-hitting analysis of the three main segments of the CFPB’s latest moves in connection with vehicle financing.
First, Hackett acknowledged the threshold the CFPB established in its newest supervisory proposal — a rule that would generally allow the bureau to supervise nonbank auto finance companies that make, acquire or refinance 10,000 or more loans or leases annually — is the general metric he and his agency team used as a starting point when they began to craft oversight guidelines nearly three years ago.
Hackett explained he arrived at that level based on dissecting information compiled by several sources, including the Royal Media’s “Big Wheels” report, Experian’s AutoCount and the National Automotive Finance Association.
According to the CFPB, companies that handle 10,000 or more contracts per year originate around 90 percent of nonbank auto loans and leases, and in 2013 provided financing to approximately 6.8 million consumers. This group would include most if not all captive finance companies for domestic and foreign automakers such as Toyota Financial Services, Ford Motor Credit, American Honda Finance and Nissan Motor Acceptance Corp.
But in the phone conversation today, Hackett pointed out the threshold also would include indirect auto finance companies that often specialize in subprime financing such as Credit Acceptance, Exeter Finance, Consumer Portfolio Services and Westlake Financial Services.
“As the bureau noted, it’s a concentrated industry at the top, and then the other players drop off rather rapidly into the sub-1 percent of the market, so you had to draw a line somewhere,” Hackett said. “The threshold doesn’t strike me as surprising given the size of the groups the bureau has chosen to try to supervise in the past. It’s also consistent with the way industry has looked at itself in the past.”
Furthermore, Hackett referenced industry data when he mentioned that finance companies that purchase large amounts of paper from buy-here, pay-here dealers — operations such as CAR Financial — would be under the CFPB’s jurisdiction should the proposal come to be.
The CFPB indicated the proposed rule is open for comment for 60 days after the rule is published in the Federal Register.
Next, Hackett touched on the supervisory action the CFPB has taken that up until Wednesday was not made public.
Through announcements released only hours before its special field hearing set for today in Indianapolis, the CFPB also shared a supervision report that details the auto-lending discrimination that the bureau said it has uncovered at commercial banks.
Officials indicated the report highlights that the bureau’s supervisory actions against banks will result in about $56 million in redress for up to 190,000 consumers harmed by discriminatory practices.
While the CFPB didn’t offer much more specifics, Hackett said, “You should assume that’s more than one bank. It’s probably more than two or three because usually that kind of supervisory highlights come out after you’ve made a substantial dent when looking at banks on a confidential basis.”
Though still significant amounts, Hackett noted that a single commercial bank likely wasn’t hit with an individual penalty with the magnitude the CFPB and the Department of Justice levied on Ally Financial late last year. As finance company leaders might remember, regulators ordered Ally to pay $80 million in damages to harmed African American, Hispanic, and Asian and Pacific Islander borrowers, along with another $18 million in penalties.
The CFPB and DOJ determined that more than 235,000 minority borrowers paid higher interest rates for their vehicle loans between April 2011 and December of last year because of what federal officials described as “Ally’s discriminatory pricing system.”
Based on the depth of the newest CFPB enforcement actions, Hackett said, “One might take away that some of the other institutions that are composing that $56 million had less of a problem.”
Finally, the CFPB also released its highly anticipated white paper on evaluating and determining disparate impact.
In order to evaluate a finance company’s compliance with fair lending laws, CFPB explained its examination teams use a proxy methodology just as other federal supervisory agencies and many private companies do.
To proxy for race and national origin, exam teams rely on data associated with consumers’ last names and places of residence. Census Bureau data is first used to calculate the probability that an individual belongs to a specific race and ethnicity based on their last name. Exam teams then update that probability based on the demographics of the area in which the person resides again using Census Bureau data.
The CFPB is releasing a white paper which details the precise methodology the bureau uses to calculate these probabilities, and is also releasing the bureau’s computer code so that lenders can perform the same analysis that the bureau’s examination teams perform.
The white paper also reports on a study the bureau has conducted which finds that the integrated approach to building a proxy is more accurate than either surname or geographic data individually.
With so much information contained in the latest CFPB materials, Hackett said, “I will be the first one to confess that some of the metrics that are being used are very statistically sophisticated and go beyond the immediate first-read understanding of an average car guy like me.”
“I think one of the things we need to do is to talk to serious economists about the predictive quality of each of the metrics that they have used to assess (Bayesian Improved Surname Geocoding) against known race and ethnicity information from the mortgage side and how they stack up against the uses of proxies in other situations,” he continued.
“The takeaway is this gives us a lot of information to figure just how good or bad the bureau’s method really is. That’s a very important thing,” Hackett went on to say. “It also gives us very clear guidance, if we didn’t know already, on exactly what the bureau is doing.”
Hudson Cook bolstered its partner roster of former high-ranking enforcers who held roles at the Consumer Financial Protection Bureau and the Federal Trade Commission.
This week, the law firm added Lucy Morris as a partner in its Washington, D.C. office. Morris brings 25 years of experience in all aspects of consumer finance law and public policy. The firm indicated she will support the firm’s enforcement and compliance practices, and her experience will further enhance the firm’s ability to provide meaningful and practical advice to its clients.
“Lucy brings a wealth of experience with consumer financial services regulation, from both the CFPB and the FTC, and she will be a great addition to our practice,” Hudson Cook chairman Tom Hudson said.
From 2011 to 2014, Morris served as deputy enforcement director in the Division of Supervision, Enforcement, and Fair Lending at the CFPB. Morris’ responsibilities at the CFPB included overseeing investigations and litigation relating to consumer financial products and services, including credit cards, mortgage origination, mortgage servicing, payday lending, debt collection, credit reporting and debt settlement.
From 2010 to 2011, Morris served as a founding member of the implementation team that organized the CFPB after passage of the Dodd-Frank Act, helping to stand up the bureau’s enforcement, supervision and other functions.
Before joining the CFPB, Morris worked at the FTC from 1989 to 2010. She served in a variety of positions in the FTC’s Bureau of Consumer Protection, including assistant director of financial practices and assistant to the director.
Morris worked in the Division of Financial Practices for 18 years, where she was responsible for protecting consumers of financial products and services through law enforcement, rulemaking, policy development and public outreach. During her tenure at the FTC, Lucy supervised, litigated, and investigated complex law enforcement actions involving a variety of consumer financial products and services, including mortgage origination, mortgage servicing, credit reporting, debt collection and debt settlement.
Morris was given the Chairman’s Award in 2008, the FTC’s highest award, in recognition of her accomplishments.
Before joining the FTC, Morris practiced law for three years as a litigation associate at Betts, Patterson & Mines in Seattle.
Morris speaks frequently on topics relating to the CFPB, law enforcement, litigation, and consumer financial protection.
With the addition of Morris, Hudson Cook’s stable of legal experts now includes Joel Winston (former head of the FTC’s debt collection enforcement program) and Rick Hackett (former head of CFPB’s office of installment and liquidity lending markets).
