During prepared remarks covering an array of topics, Consumer Financial Protection Bureau director Kathleen Kraninger revisited a subject particularly important to auto finance companies — how in-person, onsite examinations might unfold.
Kraninger told attendees at an event hosted by the Bipartisan Policy Center: “To quote one of the bureau staff in New York — people act differently when they know there is a regulator who will be checking their work.”
Last week’s public appearance was one of only a handful Kraninger has made since being officially installed as the agency’s leader last December. She appeared during hearings orchestrated by both the House and Senate in March and reflected on those events during her time with the Bipartisan Policy Center, which is a Washington, D.C.-based think tank.
Kraninger emphasized that the bureau possesses supervision authority that can prevent violations of laws and regulations from happening.
“Bureau examiners can review compliance management systems at an institution to assess whether the institution is taking its obligations seriously, and whether it has a culture of compliance that tries to prevent harm in the first instance,” she said, according to the remarks shared by the bureau.
“Supervision can uncover inattention to compliance and other internal controls that, if unaddressed, might lead to future violations. We can then suggest ways the institution can make improvements that might stop this from happening,” Kraninger continued.
“In fact, traditional banking institutions and non-bank lenders alike have noted the value of the exam process in supporting their compliance efforts — I heard it repeatedly in my conversations over the listening tour. Heading trouble off at the pass may not grab big headlines, but it will prevent a lot of headaches for the consumers we serve,” she went on to say.
To reinforce her point, Kraninger recapped how she recently joined examiners at an onsite investigation. She said the examiners explained the systems they use, the information requests they sent, the data they received back and the steps they take to evaluate whether an institution is complying with its legal obligations.
“They talked about how they review an institution’s compliance management systems,” Kraninger said. “I was encouraged to hear their focus on working with the institution to prevent consumer harm, and I will encourage and expect this productive focus going forward.”
Perhaps as a response to critics on Capitol Hill and within the consumer advocate community, Kraninger also stressed the CFPB still has a significant percentage of its personnel and resources dedicated to conducting exams.
“I am focused on ensuring we use this tool as effectively and efficiently as possible to prevent consumer harm,” she told the Bipartisan Policy Center.
Kraninger elaborated about that particular point in light of her being director for only a few months.
“Focused on these goals for supervision, I have challenged the staff to take a fresh look at the entire process — the prioritization and frequency of exams, the size of the exam teams, the days spent onsite, the systems and job aids that support the work, the time it takes to complete an exam and deliver a report and how we empower examiners to provide input on the exam process, among other things.
“From a substantive standpoint, to ensure a culture of compliance means working confidentially in a back-and-forth process with a financial institution to prevent consumer harm until the institution demonstrates that process won’t work for them. That institution needs to self-examine, self-report and provide restitution where appropriate,” she continued.
“Given the pace of the world today, that institution — and consumers — expect agility from the bureau in terms of how quickly we can adjust to address changing risks, including how promptly we acknowledge that actual or potential harm has been addressed,” Kraninger went on to say.
The CFPB leader closed this segment of her prepared remarks by acknowledging that the bureau is not the only regulator watching what finance companies and other participants in the automotive space might be doing. Kraninger also mentioned she recently became chair of the Federal Financial Institutions Examination Council, a group of federal and state agencies that regulate financial institutions.
“Financial institutions in this country are subject to myriad laws and regulations, all while being examined by a variety of federal and state regulators. In my short tenure, I have gotten to know my federal counterparts and am building strong relationships with them,” she said. “I have also prioritized meeting and speaking with state attorneys general and commissioners at every opportunity.
“As (Federal Financial Institutions Examination Council chair), my focus will be on strengthening coordination and collaboration with our sister regulators who review the same or similar information at the same institutions, albeit for different reasons,” Kraninger continued.
“It is incumbent upon us to ensure that we do not impose unmanageable burdens while performing our duties. A more efficient and effective deployment of resources toward monitoring and addressing the risks will help all agencies do their jobs better and will help the bureau to prevent harm to consumers and address violations where they occur,” she went on to say.
Indiana attorney general Curtis Hill is pursuing legal action against another dealership promotions company over allegations of deceptive advertising that included thousands of dollars in prizes and promotions of special financing connected with monthly payments of less than $100.
In a civil lawsuit filed April 4 in Morgan County, Hill alleged that Texas-based Hopkins and Raines sent mailings to 2.1 million Indiana consumers as part of 56 different promotions for dealers in Indiana between March of 2016 and March of 2018.
The complaint alleged that all the mailings contained game pieces purporting to determine whether recipients had won prizes, which included such valuable items as vehicles, TVs or $1,000 in cash. Hill’s office said each mailing, however, contained identical game pieces with winning numbers. Thus, each mailing allegedly communicated to all recipients that they had won significant prizes when they had not.
The Hoosier State AG continued in a news release that recipients who went to dealerships to claim winnings were awarded “prizes” much less valuable than those advertised — typically such items as a $5 Walmart gift card, a scratch-off lottery ticket, a “cheap” MP3 player or a mail-in rebate coupon for $10 off the purchase of a turkey.
In the lawsuit, Hill alleged that the true reason for the mailing was to lure recipients to events where they would be subjected to sales pitches for vehicles.
In addition to the alleged deceptive nature of the mailings, the Indiana AG claimed the mailings violated the Promotional Gifts and Contests Act in various ways. These promotions allegedly included:
— Uniformly failing to identify the name and address of the promoter
— Failing to state the odds of winning each prize in the appropriate place and size
— Failing to include the verifiable retail value of each prize in the appropriate place and size
— Failing to include any disclosure that the recipients may be subjected to a sales pitch
— Failing to properly identify the retail value of prizes
Hill has filed similar complaints within recent months against five other promotional firms, including:
— DBR Integrity Promotions
— Dealer Direct Services
— Prophecy Marketing
— Traffic Jam Events
— Xcel Media Group
To date, Hill has obtained judgments against Traffic Jam Events and Prophecy Marketing.
“Always be skeptical of anything that seems too good to be true,” Hill said. “Typically, the announcement that ‘you’re a winner’ is merely a ploy to entice you to go listen to someone's sales pitch. We want Hoosiers to be alert to all varieties of misleading advertising so they can avoid wasting their time or, even worse, getting talked into making ill-advised purchases.”
For the second time leading into this week’s North American Repossessors Summit (NARS), Recovery Industry Services Co. (RISC) is bolstering its offerings.
Through its relationship with Hudson Cook, RISC announced it has completed a significant update to the Certified Asset Recovery Specialist (CARS) National Certification program. Improvements include detailed information about repossession insurance, relevant case studies and updates to the laws that govern the self-help repossession process.
“The updates include a comprehensive review of repossession laws to ensure recovery agents are getting the most relevant and recent compliance education,” said Hudson Cook partner Eric Johnson, who will continue to oversee annual updates to the CARS and CARS Continuing Education courses.
RISC president and chief operating officer Holly Balogh added, “We are excited to continue to foster our relationship with Hudson Cook to provide the most thorough, up-to-date educational material to repossession agents.
RISC chief executive officer Stamatis Ferarolis emphasized the relationship with Hudson Cook, as well.
“Our partnership with Hudson Cook means agents who invest in the CARS program are receiving the most recent and relevant training for collateral recovery,” Ferarolis said. “Anyone who becomes certified on the CARS program can be confident that the material is widely accepted and sought after by creditors in the repossession industry.”
This announcement arrived on the heels of RISC being set to release an updated version of the Skip-Tracing Certification authored by Alex Price, who is the director of risk solutions at Digital Recognition Network (DRN), and also known as “The Skip Guru.”
To sign up for the CARS program or a new CE course, visit www.riscus.com/Education/. RISC offers a subscription monthly payment option for all education purchases.
For questions about RISC and the CARS program, contact Balogh at holly@riscus.com.
Collections and other customer-service communications certainly can be a complicated endeavor, and a survey conducted by PossibleNOW revealed how some firms still might not have a firm grip on all compliance matters associated with getting past-due payments and more.
The provider of enterprise consent and preference management solutions reported this week that its latest survey showed a 26% increase year-over-year in businesses utilizing consent collection from 2018 to 2019. Last year, PossibleNOW noted that just 38% of companies reported collecting consumer consent.
PossibleNOW pointed out another 31% of participants reported they weren’t sure if they were collecting this information.
This year, the survey indicated 64% reported actively collecting consumer consent, while 28% remained unsure. PossibleNOW emphasized that consent management is of growing importance, as it provides a company the ability to continue their marketing efforts toward their customers in an environment of increasing regulatory laws such as General Data Protection Regulation (GDPR) and the California Consumer Privacy Act of 2018 (CCPA).
When asked about GDPR compliance, PossibleNOW said 24% of respondents reported compliance in 2018. When respondents were asked the same question in 2019, only an additional 3% reported they were compliant.
Companies were further asked which GDPR requirements they found most challenging, and 44% of respondents said that “right to access” laws such as providing customers a copy of their personal data and the purpose for processing that data was most challenging. Another 33.3% reported that consent management such as capturing, storing and distributing consent across the company created confusion.
While companies report their consent collection has increased, PossibleNOW determined confusion around management of this data also increased — showing a need for an enterprise-wide consent and a preference management solution or approach.
As the era of increased concern regarding privacy and data among consumers continues, and government regulations greatly narrow the lawful use of such data, PossibleNOW senior vice president of strategy and consulting Jeff Jarvis stressed this survey showed that awareness and confusion within corporations must be addressed to mitigate risks.
“Considering that GDPR is already enacted, and data privacy legislation such as the CCPA is increasing in the United States, it’s concerning — although not surprising — that there remains confusion around issues of regulatory compliance,” Jarvis said.
“An increase in companies collecting customer consent is a positive step in building trust and maintaining long-term customer loyalty, however companies must be aware of potential violations, and able to quickly adapt to ongoing legislation,” he added.
What the attorneys general in Massachusetts and Delaware alleged as “unfair” auto financing is going to cost Exeter Finance a little more than $6 million in payments back to customers and state penalties.
According to a news releases distributed late on Monday, Massachusetts attorney general Maura Healey announced Exeter agreed to a settlement and “will pay for its role in allegedly financing unfair, subprime auto loans.”
Healey explained this assurance of discontinuance, filed in Suffolk Superior Court, includes $4.675 million that will be available to provide relief to harmed borrowers and an $825,000 payment to the state.
Healey also said Exeter will also waive deficiencies on certain installment contracts and will ask the major credit bureaus to wipe all trade lines for involved installment contracts on consumers’ credit reports.
Healey said her office worked collaboratively with the Delaware attorney general’s office on this investigation. Delaware attorney general Kathleen Jennings announced her state’s settlement with Exeter includes $550,000 to provide relief to customers in Delaware.
And like in Massachusetts, Jennings indicated Exeter will also be waiving deficiencies on certain subprime installment contracts and will be asking the major credit bureaus to wipe all trade lines for involved contracts on those consumers’ credit reports.
“This company’s loans put Massachusetts car buyers in economic danger,” Healey said. “Today’s settlement with Exeter provides millions of dollars in relief and repairs damaged credit. Our office will continue to investigate the subprime lenders, financiers and securitizers, and protect consumers.”
Jennings added, “Protecting consumers from unfair lending practices is extremely important. Today’s settlement with Exeter provides monetary relief to Delaware borrowers and repairs damaged credit.
“Our office will continue to investigate the subprime auto lenders to ensure that Delaware consumers receive a fair deal when they are extended credit to finance a purchase,” Jennings went on to say.
Both AG offices alleged that Exeter facilitated the origination of auto financing in Massachusetts and Delaware that the company knew or should have known were unfair and in violation of the state consumer protection laws. Officials explained courts have held that lending is unlawful under the statute if finance companies do not have a basis for believing that borrowers will be able to repay their loans in normal course.
Healey went on to mention Exeter also allegedly mishandled servicing and collecting activities in violation of Massachusetts’ debt collection regulations.
These settlements are part of what Healey and Jennings said are reviews of securitization practices in the subprime auto finance space — an investigation that remains ongoing. Previously, their offices secured nearly $26 million from Santander Consumer USA for its role in subprime auto financing.
Organizers of the 23rd annual Non-Prime Auto Financing Conference hosted by the National Automotive Finance Association have solidified their agenda that covers an array of topics again this year.
From the NAF Association/AFSA Non-Prime Auto Financing Survey and a look at the auto ABS market to what’s being dubbed as “Fraud Friday,” this year’s event contains three days of informational presentations and networking opportunities, beginning on June 5 in Plano, Texas.
“The program is very good. It covers many aspects of non-prime auto financing,” NAF Association executive director Jack Tracey said.
Some of the experts slated to share their insights during the conference include:
— Ben Werner, FICO
— Amy Martin and Rahel Avigdor, S&P Global Ratings
— Jonathan Smoke, Cox Automotive
— Chris Burt, GM Financial
— Michelle Whatley, Exeter Finance
— Eric Johnson, Hudson Cook
— Mark Edelman, McGlinchey Stafford
— Penny Campbell, Jefferson Capital Systems
— Kip Cochran, Texas Dealer Solutions
— Sharon Mancero, Wells Fargo Preferred Capital
— Kelly Blankenship and Richard Hudson, Ignite Consulting Partners
— Frank McKenna, PointPredictive
— Joe Cioffi, Davis & Gilbert
— Josh Wortman, General Forensics
Also, graduates of the NAF Association’s Certified Consumer Credit Compliance Professional Program can earn up to eight credits toward recertification during the conference.
Complete agenda and registration details are available at www.nafassociation.com.
The Consumer Financial Protection Bureau indicated that it took a deep look at what it called “unfair and deceptive practices” regarding rebates for certain ancillary products after examining the protocols executed by at least one captive finance company.
CFPB officials recapped through its latest Supervisory Highlights that vehicle buyers sometimes also finance the purchase of ancillary products such as an extended warranty when they take delivery and enter into a retail installment sales contract. Then as finance companies know, if the contract holder later experiences a total loss or repossession, the servicer or contract holder may cancel such ancillary products in order to obtain pro-rated rebates of the premium amounts for the unused portion of the products.
In these situations, the bureau acknowledged the rebate is payable first to the servicer to cover any deficiency balance and then to the borrower.
“Generally, the servicer contractually reserves the right to request the rebate without the borrower’s participation, although it does not obligate itself to do so. The borrower also retains a right to request the rebate,” the CFPB said in the latest Supervisory Highlights.
During its examinations of extended warranty products and policies used by this unnamed captive, the CFPB found the amount of a potential rebate for the products depended on the number of miles driven. The bureau said its examiners observed instances where one or more servicers used the wrong mileage amounts to calculate the rebate for extended-warranty cancellations.
“For some borrowers who financed used vehicles, the servicers applied the total number of miles the car had been driven to calculate rebates,” the CFPB said. “However, the servicer(s) should have applied the net number of miles driven since the borrower purchased the automobile.
“The miscalculation reduced the rebate available to certain borrowers and led to deficiency balances that were higher by hundreds of dollars. The servicer(s) then attempted to collect the deficiency balances,” the bureau continued.
“One or more examinations found that servicer attempts to collect miscalculated deficiency balances were unfair,” the CFPB went on to say. “Collecting inaccurately inflated deficiency balances caused or was likely to cause substantial injury to consumers. And these borrowers could not reasonably have avoided collection attempts on inaccurate balances because they were uninvolved in the servicer’s calculation process.”
The CFPB explained the injury of this activity is not outweighed by the countervailing benefits to consumers or competition. For example, officials emphasized the additional expense the servicers would incur to train staff or service providers to ensure that refund calculations are correct would not outweigh the substantial injury to consumers.
In response to these findings, the CFPB said the finance companies conducted reviews to identify and remediate affected contract holder based on the mileage they drove before the repossession or total loss of their vehicles. The bureau added that the finance companies also began to verify mileage calculations directly with the issuers of the products subject to rebate.
Additionally, the bureau pointed out its examiners observed instances where one or more servicers did not request rebates for eligible ancillary products after a repossession or a total loss. The regular indicated that the finance company then sent these contract holder deficiency notices listing a final deficiency balance purporting to net out available “total credits/rebates,” including insurance and other rebates. The notices also stated that future additional rebates may affect the amount of the surplus or deficiency, but that “at this time, we are not aware of any such charges.”
The CFPB said that the servicers’ records contained information that it had not sought the eligible rebates. Examinations showed that the average unclaimed rebate was roughly $1,700.
“One or more examinations identified these communications as a deceptive act or practice. The deficiency notice misled borrowers because it created the net impression that the deficiency balance reflected a setoff of all eligible ancillary-product rebates, when in fact, the servicers’ systems showed that it had not sought one or more eligible rebates,” the CFPB said.
“It was reasonable for consumers to interpret this deficiency balance as reflecting any eligible rebates because the servicers were both contractually entitled and financially incentivized to seek and apply eligible rebates to the deficiency balance. And the misrepresentation was material to consumers because they may have pursued rebates on their own had the servicers not represented that there were not additional rebates available,” the bureau continued.
“In response to these findings, the servicers conducted reviews to identify and remediate affected borrowers. The servicers also changed deficiency notices to clarify the status of eligible ancillary product rebates,” the CFPB concluded.
Having been unsuccessful in becoming governor of Ohio, former Consumer Financial Protection Bureau Richard Cordray appears to have resurfaced on the West Coast in connection with a high-ranking California state lawmaker.
Multiple social media posts from California Assemblymember Monique Limon show her pictured with Cordray having what she said was a “great conversation” with the previous leader of the CPFB “on the attacks against consumer protections.”
Limon is chair of the state assembly’s banking and finance committee. She already made two proposals within the committee with one titled, the Fair Access to Credit Act as well as another action that “would revise the definition of a broker to include anyone who is engaged in the business of performing specified acts in connection with loans made by a finance lender, including, among other things, transmitting confidential data about a prospective borrower to a finance lender with the expectation of compensation in connection with making a referral unless a specified exception applies.”
According to the biography on her website, Limon was elected to the assembly in November 2016. She is only the second woman ever to be chair of the chamber’s banking and finance committee.
“As only the second women in California history to serve in this role, I do not take the responsibility that comes with this position lightly,” she said in a news release from last May in connection with state regulation of personal loans.
Cordray announced in November 2017 that he would departing the CFPB after serving as its first director thanks to an appointment by President Obama. Cordray lost to Mike DeWine in the election to be Ohio’s governor a year later.
The meeting involving Limon and Cordray was first reported by American Banker.
Protective Asset Protection rolled out another product to help dealerships understand federal tax changes.
The provider of F&I programs, services and dealer-owned warranty company programs made available a new educational infographic for dealerships and dealer principals on the effect recent tax reform measures have had on dealer participation programs.
In “Tax Laws Demand a Review of Reinsurance Programs,” analysts noted the Trump administration’s Tax Cuts and Jobs Act, which took effect for the 2018 tax year, may reduce personal and corporate liability, but it also affects the selection and performance of a dealer’s participation program, such as non-controlled foreign corporations.
According to a recent survey conducted by Protective Asset Protection, more than half of the dealer groups surveyed currently participate in an NCFC, and only 11 percent of dealer group executives are aware that the new tax law could adversely affect NCFCs.
“While NCFCs may have served dealership principals in the past, it may not be a wise move to take a gamble on this structure moving forward,” Protective Asset Protection vice president of reinsurance Matt Gibson.
““Dealers are gambling that the advisors’ advice will be accepted by the IRS. There’s a lot at risk when rolling the dice with the Internal Revenue Code and the IRS’s interpretation of it,” Gibson continued.
The infographic also explains how a dealer-owned warranty company may be a better alternative for dealers. DOWCs are structured to allow a dealer to own, market, sell and support their own branded F&I program by owning their own company.
Go to this website to download the free infographic.
The Federal Trade Commission recently offered six recommendations to dealerships and auto finance companies that might receive subpoenas and civil investigative demands (CIDs) as part of an investigation into potential law violations
Burke Kappler, an attorney in the FTC’s Office of General Counsel, explained in a recent blog post that the regular subpoenas and CIDs are critical and used deliberately and responsibly to avoid unnecessary burdens on businesses and individuals and consistent with its obligations to enforce the law.
“These requests are legally enforceable demands, and recipients of subpoenas or CIDs need to take their obligation to comply seriously,” Kappler wrote. “We expect all companies and individuals who receive compulsory process to respond completely and in a timely manner, or to disclose quickly and candidly any obstacles to full compliance.
“We routinely work with recipients to narrow or defer requests, and generally, we have found that parties cooperate. But not everyone sees the benefits of cooperation, which can often result in delay,” Kappler continued.
In an effort to make the process go as smooth as possible, Kappler offered these suggestions, including:
— Respond promptly to FTC staff upon receipt of a subpoena or CID.
— Take advantage of meet-and-confer opportunities and be forthcoming about any concerns that you have about your ability to comply on time and in full. In meetings or calls, bring people who have knowledge and information about the required documents and information and the efforts necessary to produce them. Provide specific and concrete information — not just guesses.
— If you run into problems meeting deadlines, call staff immediately. Keep them apprised so they can work with you. Stay in contact. Don’t let deadlines pass without explanation.
— Understand that the FTC and its staff need to move investigations forward expeditiously. Unsupported requests for extended delays may not be granted.
— Abide by commission orders promptly. If you have filed a petition to limit or quash a CID or subpoena and the commission has ordered some form of compliance, you must do so or risk a potential enforcement action within 30 days of the commission’s deadline.
— Bear in mind that there are many other factors that affect the timing and course of an FTC investigation. Delaying compliance with a CID or subpoena in hopes that you won’t have to comply at all rarely works, and most often results in follow up from the Office of General Counsel.
