Dealers face concern and confusion as they work to comply
When it comes to automotive compliance to regulations, Automotive Compliance Consultants cautions auto dealers to heed the aggressiveness of the new Consumer Financial Protection Bureau (CFPB) in its indirect, but very real review of automobile dealership financing practices.
One of the biggest issues is “discriminatory markups,” as cited in an early bulletin from the CFPB.
The Consumer Financial Protection Bureau (CFPB) released a bulletin explaining that certain lenders that offer auto loans through dealerships are responsible for unlawful, discriminatory pricing. Potentially discriminatory markups in auto lending may result in tens of millions of dollars in consumer harm each year.
CFPB Director Richard Corday
“Born out of the worst financial crisis since the Great Depression, the Consumer Financial Protection Bureau is the nation’s first federal agency whose sole focus is protecting consumers in the financial marketplace. We are dedicated to improving the lives of everyday Americans and to restoring trust in consumer financial markets,” Cordray said.
ACC Counsel and CEO Speak Out
”Whether dealers like it or not, the CFPB is looking at and analyzing all financial practices and compliance with financial regulations,” said David Missimer, general counsel for Automotive Compliance Consultants. “It is doing so by indirectly looking into those entities under CFPB jurisdiction that transact business with the retail automotive industry.”
“The CFBP has made recent bold moves that are affecting how auto dealerships finance customers , as it is apparent that auto dealers, though technically not under the CFPB’s umbrella, are being targeted by CFPB to pressure their lenders to modify their lending practices,” said Terry Dortch, CEO of Automotive Compliance Consultants.
Lithia Motors Management Team Speaks Out
Three members of Lithia Motors’ management team all voiced strong opinions about the Consumer Financial Protection Bureau’s recent guidance on indirect auto lending and dealers’ role in retail vehicle sales.
“We aren’t the lender, and that’s often misunderstood. They often think of it as that we’re the fee generator, like we’re more like a broker in the deal,” Sid DeBoer, [Lithia Motors founder and executive chairman] said. “In reality, we originate the loan. The loan is made between our store and the customer. We negotiate an interest rate.
“But we’re originating loans. How do you regulate that? We have no data to indicate what race (the buyers) are,” he went on to say. “We have the data relative to their credit score, but we have no other data. It’s really a monster to try to get control of that. Obviously, that’s why we were not included in (the CFPB’s) realm of control.”
However, DeBoer didn’t discredit all of the CFPB intentions of its indirect auto loan guidance.
“I think the pressure is good to make sure dealers don’t overcharge a customer,” DeBoer said. “I think that’s very valid. We’ve always been very much in control of that. We monitor it. We have criteria internally to look at what each customer is charged and the margin in it. I don’t believe it’s a big problem.”
The bottom line: Automotive dealers, while trying their best to comply with all compliance regulations, must take the extra step to make sure they have satisfied ongoing changes in regulatory best practices.