While it might seem like it’s already been a decade since the coronavirus pandemic started to impact our lives, it’s truly been 10 years since the signing of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which opened the path for creation of the Consumer Financial Protection Bureau.

An array of industry experts and leaders shared with me how much the regulatory world has changed since the Dodd-Frank Act was signed on July 21, 2010, making it more challenging for the auto-finance industry. I’ll begin my recap of their perspectives with Celia Winslow, who is senior vice president of the American Financial Services Association.

“The biggest regulatory change for the auto finance industry since the Dodd-Frank Act is clearly the creation of the Consumer Financial Protection Bureau,” Winslow told me. “While auto-finance companies have been supervised and regulated at the state level, and under the jurisdiction of the Federal Trade Commission and subject to regulations issued by the Federal Reserve Board at the federal level, CFPB supervision marks the first time that these financial institutions have been supervised by a federal financial regulator.

“We appreciate the bureau’s recent focus on providing clear rules of the road for the auto-finance industry,” Winslow continued. “Without clarity, compliance can be challenging. AFSA continues to push for a bipartisan commission structure at the bureau to further enhance that clarity.”

Ignite Consulting Partners chief legal and compliance officer Steve Levine not only works with finance companies, but the firm also has franchised and independent dealerships on its nationwide client roster. Levine also made the connection of Dodd-Frank, the CFPB and other agencies.

“Dodd-Frank has had a profound impact on the auto finance industry,” Levine said. “The creation of the CFPB and the leadership role it has taken has had an obvious effect, but I also believe that the FTC has become a more active and aggressive agency because of the CFPB. And the relationships that the bureau forged with state regulators and attorneys general has also made a significant mark.

“Further, it's been my observation that much of the CFPB’s work in issuing guidance has been interpreted as ‘best practices’ and been used by plaintiffs’ lawyers as a playbook to bring an action against industry participants,” he added.

Whether coming from lawsuits from a private firm or an action from the CFPB, the past 10 years certainly have been active in the penalty front in the auto-finance segment. Here are just a couple of examples:

— In January 2016, the CFPB made an enforcement action against Herbies Auto Sales, then a buy-here, pay-here operator in Greeley, Colo., for what the bureau deemed to be abusive financing schemes, hiding auto finance charges and misleading consumers. The CFPB said Herbies was to pay $700,000 in restitution to harmed consumers, with a suspended civil penalty of $100,000.

— In April 2017, the CFPB said that Security National Automotive Acceptance Company (SNAAC) violated a consent order from 2015, demanding that the finance company make good on the redress it owes to consumers and pay an additional $1.25 million penalty. The CFPB initially ordered SNAAC, which specialized in working with servicemembers, to pay both redress and a civil penalty for illegal debt collection tactics, including making threats to contact servicemembers’ commanding officers about debts and exaggerating the consequences of not paying. The bureau determined SNAAC violated the 2015 order by failing to provide more than $1 million in refunds and credits, affecting more than 1,000 consumers.

— In December 2013, the CFPB in coordination with the Department of Justice ordered Ally Financial to pay $80 million in damages to harmed African-American, Hispanic, and Asian and Pacific Islander borrowers and $18 million in penalties because the agencies determined that more than 235,000 minority borrowers paid higher interest rates for their auto financing between April 2011 and December 2013 because of Ally’s “discriminatory” pricing system.

While Ally Financial now is a thriving company, SNAAC and Herbies eventually exited the business.

Also of note since Dodd-Frank arrived and the creation of the CFPB was the regulator’s controversial 2013 guidance on indirect auto financing. That guidance claimed dealer discretion on interest rates creates a “significant risk” of unintentional disparate impact discrimination and spelled out the bureau’s intention to pursue enforcement actions on that basis such as the Ally Financial penalty.

Federal lawmakers eventually got the guidance removed five years later.

Critics pointed out the CFPB’s theory was based on shaky methodology for determining disparate impact, and the guidance was put in place without comments from stakeholders, public hearings or studies of its effect on the cost of credit to consumers.

“Without seeking any public comment or studying the impact on consumer credit,” National Independent Automobile Dealers Association senior vice president of legal and government affairs Shaun Petersen said in 2018 when Congress took action, “and with no evidence to back up its claim, the bureau issued a rule under the guise of guidance to limit dealers’ ability to meet their customers’ needs when shopping for credit.

“We applaud Congress for taking steps to rescind the bureau’s overreach,” Petersen added.

It’s unknown whether different lawmakers elected to be in Congress and the White House would have altered the trajectory of activities since Dodd-Frank. But National Automotive Finance Association executive director Jack Tracey reiterated why the organization began to take more profound moves related to compliance and training.

“When the bureau first came into existence it initially approached its task through heavy enforcement actions. This catapulted compliance activities to be among the activities that are most closely monitored by senior management. Auto finance companies could not afford to deal with heavy non-compliance penalties. Company management quickly realized that they need skilled professionals in senior positions to appropriately deal with compliance challenges,” Tracey said.

“Appropriate training of these compliance managers became a concern and that’s when the NAF Association stepped in with its Compliance Certification Program. Now, 10 years later over 650 compliance professionals have completed the program. Many of them continue to engage on a regular basis to discuss compliance issues through the Association’s Quarterly Compliance Roundtables,” he continued.

“Today, more senior management attention is directed a compliance matters because of the CFPB, but the industry has met the challenges through an educated management team,” Tracey went on to say.

Current NAF Association president Joel Kennedy closed with several points that encompass not just finance companies, dealerships and even the regulators, but all of us since we’re still consumers, too.

“A thorough understanding of the regulatory environment represents baseline ‘table stakes’ for all lenders, noteholders and third-party vendors in automotive finance,” Kennedy told me. “I saw this first from the lender side, where lenders have been placed into a position of indirectly regulating dealers\ and service providers and requiring them to demonstrate competence and control effectiveness. At the end of the day, the lenders are ultimately accountable in the eyes of the CFPB.

“From the standpoint of supporting industries (like third-party vendors), I have seen a broad-base of willingness to truly understand the regulations and ensure compliance with the regulations. Many times, lenders learn about critical regulatory changes from their service providers first,” he continued.

“Finally, the politicization of the CFPB, with their initial strategy of ‘regulation through enforcement’ definitely took a toll on the industry,” Kennedy went on to say. “This negative approach really set the tone for the relations between the bureau and lenders. The good news is that 'regulation through enforcement' changed with the appointment of the current director.

“With a more hospitable situation where dialog can occur, the NAF Association is proud to have cultivated a healthy working relationship with the bureau, which we believe is ultimately beneficial for the American consumer,” he added.

And with how this COVID-19 world is, no doubt we could all use all the benefits we can get.

Nick Zulovich is senior editor at Cherokee Media Group and can be reached at nzulovich@cherokeemediagroup.com.