Questions abound on the direction of regulation in the automotive industry.
What enforcement action may the Federal Trade Commission take after its 97 letters sent to dealers? What’s the future of the Consumer Financial Protection Bureau? And what direction will state attorneys general take if the federal agencies pull back on enforcement?
Driving the news: Some of the leading voices in compliance and auto legal representation presented their best interpretation of recent activity at all levels during the “Inside the Legal Playbook: The Legal Landscape in Auto Finance” at the Non-Prime Auto Finance Conference in Irving, Texas.
Yes, they did discuss the FTC’s letters and their repercussions and the focus on advertising all fees, true pricing and bait-and-switch. There was also a mention of Senator Elizabeth Warren’s inquiries earlier this year into repossessions.
But here are a few of the other issues for dealers and lenders to keep top of mind.
The CFPB is alive: As pointed out by the warning letters sent by the FTC in March, this is not the time to think regulatory action is off the table and go to sleep on compliance. That goes for the CFPB, which has seen funding put into question and some regulators leave the agency.
“I think it’s easy to fall into the trap of, ‘Hey, Trump Administration is deregulating everything, so we don’t have to worry about the Feds anymore. That is 100% not accurate. Even against their appeal, internal struggle, and internal turmoil, the CFPB still has enforcement cases, and they are still quietly pursuing those enforcement cases.”
Bethany Slomski-Rangle
Exeter Finance, LLC
Julia Whitelock and Eric Johnson of Hudson Cook, LLP, suggested the CFPB is more focused on consumer redress, noting some changes.
Less punitive enforcement than under Rohit Chopra’s tenure.
The changes may result in smaller settlements.
The agency’s enforcement of the rules is more by-the-book.
Disparate impact stays around: In a final ruling in April, the CFPB eliminated the regulation that holds lenders liable if a policy imposes a rule that unfairly harms a protected class of people. But that’s far from the final say.
Slomski-Rangle and Mark Edelman of Womble Bond Dickinson, LLP, points out several states, including New York, New Jersey, Massachusetts, Illinois, and Colorado, are still saying the rules apply to equal credit laws.
The CFPB rule is also being challenged in federal court.
“The court may say, we don’t really care that you changed this regulation, because the law is pretty clear: disparate impact is a form of real discrimination,” Edelman said.
Protecting service members: The one area the experts agreed regulators are continually watching for is violations of the Servicemembers Civil Relief Act. Simply, the law requires reduced interest rates to 6% for service members on active duty and protections from repossession.
Whitelock pointed out there are a lot of provisions of the SCRA, but the Department of Justice, with support from the White House, is zeroed in on a few items:
Predatory auto finance
Repossessing vehicles of service members
“Something interesting about this is that they’re not just going after big retailers. There was a recent settlement with one of the nation’s biggest retailers of used cars, but they are going after small companies with single-digit alleged violations.”
Julia Whitelock
Hudson Cook, LLP
“These settlements have been in the hundreds of thousands of dollars in compensation to affected service members plus civil penalties, requirements for policy and training changes to avoid future violations.”
Overall on repossessions, the panel urged parties to review policies and procedures, especially when working with third parties and regarding consumer claims of wrongful repossessions.
Identity theft claims require action: Fraud is nothing new, but with AI, it is on the rise. Experian reported earlier this year a rise in forgeries and deepfakes. Whitelock noted that some of the fraud is leading to identity theft claims.
“Someone is saying you’re reporting negative credit on me, but it isn’t me. When you get a dispute, your obligation is to conduct a reasonable investigation based on that dispute,” Whitelock said. “Identity theft as a finance company is hard for you to figure out because you weren’t there when they bought the vehicle. You don’t know all the documentation because you don’t have it.”
She added that recent court cases were dismissed because establishing identity by the furnisher of the funds was not “readily verifiable.”
FCC is not just about TV: In the alphabet soup of agencies, the FCC is not typically the first to come to mind. But the agency that oversees the public airwaves issued a proposed rule on call centers, pushing for those to be moved back to the U.S.
The deadline for commenting on the rule, which could impact collections and business development calls, is June 22.
“The goal is to bring offshore collections back onshore, to quote, improve customer quality,” Slomski-Rangle said. “This has not been covered in a lot of industry calls.”
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Don’t ignore the states: Pointing to Chopra taking a job in California as the state’s CARS rule is about to begin, and recent actions by AGs across the country, the roundtable cautions that there’s increased scrutiny on the state level.
Whitelock highlighted a Pennsylvania case where the AG required the dealership, as part of a settlement, to create a compliance job position, with the AG office signing off on whether the person hired was qualified for the job.
Takeaway for dealers: Now is the time to button up on compliance, reviewing policies on underwriting, collections, and recoveries for dealers, lenders, and your vendors. Even if you feel the Fed is taking a step back on regulatory action, Edelman warns it won’t stay that way forever, and regulators can go back and look at past behaviors.
“Everything in Washington is cyclical. How long the cycles are varies. This is not the time to take the foot off the gas. It’s a time to evaluate what you’re doing and make sure you’re doing things correctly.”
Mark Edelman
Womble Bond Dickinson, LLP
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