Finance company compliance departments as well as legal counsel to trade and dealer associations are still sorting through the ramifications of the indirect auto lending and compliance bulletin the Consumer Financial Protection Bureau sent out more than a year ago. One of the crafters of that document who is no longer with the CFPB reiterated a succinct point when reflecting back on the time since the agency’s decree.

“The bulletin is real,” said Rick Hackett, who spent about two years at the CFPB before officially joining Hudson Cook in March. Hackett 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.

Now back in the private sector, Hackett has the unique position of being able to share candid assessments from the viewpoint as both a regulator and compliance adviser. Hackett spoke with SubPrime Auto Finance News from his office in Portland, Maine, to discuss a wide array of issues.

Hackett will be switching roles during this week’s 18th annual Non-Prime Auto Financing Conference hosted by the National Automotive Finance Association. A year ago at this same event in Fort Worth, Texas, he represented the CFPB and answered questions submitted in advance by NAF Association members. This time, Hackett will be posing the vetted questions to a pair of CFPB representatives, including a former bureau colleague.

The NAF Association conference is one of many stops on Hackett’s new private practice agenda. He also was a part of the National Alliance of Buy-Here, Pay-Here Dealers National Conference last week in Las Vegas.

“I can’t talk about information from a supervisory or investigative proceeding. There’s a bureau rule that applies to former employees and anyone else who has confidential information that comes from those two kinds of processes,” Hackett said.

“It comes with a measly $1 million a day penalty. You can understand why I can’t talk about those things,” he added.

Bulletin Launch and Enforcement

The CFPB released the bulletin last March. Between that point and when he departed the bureau last summer, Hackett recapped highlights about the dialogue he exchanged with various segments of the industry and regulatory worlds.

“The industry reaction to the bulletin certainly got a lot of attention because it was very strong. I spent a lot of time with NADA, other dealer associations and a lot of time with the buy-here, pay-here associations,” Hackett said. “The bureau doesn’t have jurisdiction over NADA members. But when it became clear to the exempt dealers that it was going to have an impact on them, there was a great deal of desire on their part to interact. That happened at both the CFPB offices and over at NADA headquarters.

“We got a very strong set of messages that they felt this was neither good for their business nor justified,” he continued.

The intensity hit a new threshold before 2013 closed. That’s when the CFPB and the Department of Justice ordered Ally Financial to pay $80 million in damages to harmed African American, Hispanic, and Asian and Pacific Islander borrowers, along with another $18 million in penalties.

While Hackett no longer was in his CFPB role when the bureau handed out the penalty, he said, “We clearly have Ally as an example of how this bulletin might be applied. It’s an example of how a process can start in confidential supervisory treatment and morph into what’s certainly been the most public, and frankly, the strongest public supervisory remedy, which is a consent decree.

“The bureau feels that if this is something that ought to be done in public then it ought to be done in public in a fairly significant, forceful way,” Hackett went on to say.

Hackett emphasized how the bulletin was crafted with plenty of industry knowledge at the bureau’s disposal.

“I came in with 30-plus years of representing lenders of all types, including those in the auto finance business. I’ve probably written a fair number of participation agreements for lenders. I’ve written way too many more retail installment contracts than I probably want to think about,” Hackett said. “It was my job to know something about that business coming into the bureau and how to interact with the industry on a regular basis and seed that interaction into the perspective of the bureau and how they formulated their strategies and how they would spend their time.”

Six-Month Rejuvenation

After the rigors of being one of the principals in organizing the CFPB indirect auto lending bulletin, Hackett felt compelled to do something he had never undertaken since he graduated from high school — step away from professional commitments for six months.

Hackett called it “a great way to get perspective. Just play golf and read the trades and follow things from a far. Check the bureau website every day.

“Frankly, that was a great perspective provider,” he added.

Hackett then shared with SubPrime Auto Finance News why he chose to join Hudson Cook. Hackett now focuses on all aspects of state and federal regulation of retail financial products origination and marketing, e-payments, regulation of financial service entities, and lending, deposit and insurance transactions.

“I wanted to come back into this space because I felt that there are a lot of folks in the industry who had an interest in trying to do things the right way and trying to see how the business can be operated in such a way that would align with compliance issues,” Hackett said.

“Of course, Hudson Cook is a firm that focuses exclusively on trying to help people be in compliance with consumer financial laws as opposed to going out and litigating when people have already been told they’re not in compliance. That lined up with what I wanted to do,” he continued.

Like partners such as Tom Hudson, Patty Covington, Michael Benoit, Eric Johnson and Joel Winston, Hackett explained that now he can share insights and a sense of where he thinks compliance trends might be heading with clients and the industry at large without revealing confidential information.

“Things have changed for me because I don’t know exactly what’s going on inside the bureau, but I still have some fairly decent ideas, and within limitations, I can candidly share that with people in pursuit of the goal of trying to be in compliance with consumer financial laws,” Hackett said.

Bureau Replacement

Hackett is more than familiar with the individual who replaced him at the CFPB. Now holding his former bureau role is Jeffrey Langer, who most recently served as senior counsel at Macy’s in Mason, Ohio.

Langer also has served as a partner in several law firms, including Jones Day and Dreher Langer & Tomkies. He is a founding fellow and treasurer of the American College of Consumer Financial Services Lawyers and is a former chair of the Consumer Financial Services Committee of the American Bar Association Business Law Section.

“I’ve known Jeff for more than 20 years. He has more than 30 years of experience with all sorts and conditions of consumer lending. He also has a strong background in collections,” Hackett said.

“I was one of the people who suggested to him that my position would be kind of fun for him after I saw him at the place we usually meet, which is the American Bar Association meetings,” Hackett continued. “He mentioned that he was thinking of winding down his in-house position and moving to Washington where his children had moved. I said, ‘Wow, this makes sense. Have I got a job for you.’”

During the Non-Prime Auto Financing Conference featured session, Hackett will be posing questions to Langer as well as Eric Reusch, who is the program manager in the Office of Installment and Liquidity Credit Markets with the CFPB. Hackett had high praise for both CFPB representatives.

“(Jeff is) an extremely hard working guy. I worked for him when he was chair of the ABA Consumer Financial Services Committee. I could tell you how hard he works because I used to get his five-page emails timed at 1 o’clock in the morning telling me what I was supposed to do when I was a subcommittee chair running a substantive committee under his guidance. I think he’ll be great for what the bureau is looking for in a markets lead,” Hackett said.

Hackett continued about Reusch saying, “He’s a really bright guy with a lot of industry experience. When he’s working Excel, it’s like he’s flying a 747 simulator. It’s so fast and so engaging. That helped me do the quantitative side on just a ton of different issues. He interacts really well with the industry.

“I’m impressed that (NAF Association executive director Jack Tracey) has been able to get both of these guys on stage at the same time. Often the bureau will send just one person. I’m looking forward to interacting with them,” Hackett went on to say.

Future Developments

No matter what is shared during the NAF Association event, Hackett described the “long, evolving process” that’s unfolding in indirect auto lending.

“It’s the first time you’ve had a federal regulator focused on the finance space strictly in consumer and with concern only for consumer protection, not for other sometimes conflicting issues like safety and soundness,” Hackett said. “The federal financial regulators have done a lot of work on consumer protection but they also have a bunch of other hats to wear. The Federal Trade Commission has done some great work in consumer protection, but they have many markets other than consumer finance to deal with.

“I think there will be growing pains for quite some time as the industry gets used to dealing with a regulator that’s solely focused on consumer finance and no other hats to wear. That’s just what Dodd-Frank said should happen. I think that also explains why so many people would like it to go away,” he went on to say.

“But over time, I think the bureau’s focus on getting everyone to have an appropriate compliance management system, appropriate to their size and complexity, if lenders spend the resources and bandwidth on compliance, they’ll find that’s it not more complex than making sure your mechanics can deal with whatever vehicles they have to work on,” he concluded.