The first significant penalty from the Consumer Financial Protection Bureau in connection with vehicle financing — a development associated with approximately $6.5 million in revenue for two companies.
Compliance experts from Reynolds and Reynolds and Dealertrack Technologies explain how the first enforcement action against the vehicle financing industry by the Consumer Financial Protection Bureau might give more detail about the agency’s regulatory agenda.
Terry O’Loughlin, the director of compliance at Reynolds, described a term in the legal community called, “checkbook justice.” When an individual or company is caught doing a practice that might violate laws, a state or federal agency might require the party to pay a percentage of what could be the potential liability.
“That’s not the case with the bureau,” says O’Loughlin. “The bureau tends to make the party that’s violating the law pay handsomely for their alleged wrongdoing. It sounds like an expensive resolution.”
The CFPB ordered U.S. Bank and one of its nonbank partner companies, Dealers’ Financial Services, to end what it called deceptive marketing and lending practices targeting active-duty military.
The bureau said the two companies must return about $6.5 million to service members for failing to properly disclose all the fees charged to participants in the companies’ Military Installment Loans and Educational Services (MILES) auto loans program, and for misrepresenting the true cost and coverage of add-on products financed along with the auto loans.
The Bureau’s Point of View
“The bureau has a special mission to protect service members,” CPFB director Richard Cordray said. “The MILES program failed to properly disclose costs associated with repaying auto loans through the military allotments system and the expensive auto add-on products sold to active-duty military. We will continue our work to ensure that service members are treated fairly.”
CFPB Monitor Reaction
Christopher J. Willis, writing for the CFPB Monitor, says: There are several notable things about the CFPB bulletin that will be of special interest to the auto sales finance industry.
According to Willis, the CFPB Bulletin describes the sorts of “responsible conduct” that might lead it to be more lenient in the context of an enforcement investigation.
Says Willis: The Bureau needs to encourage self-remediation, and to reward it when it occurs, and the Bulletin is a helpful public statement in that direction. The actual experience of financial services companies in such situations will also be critical to the success of the Bureau’s efforts to encourage “responsible conduct” – the Bureau can either encourage that conduct by showing industry participants the real benefits of self-remediation, or can undermine its goals by using self-remediation as a springboard for public enforcement actions.
Read the full article on the case against U.S. Bank and its non-bank partner Dealers’ Financial Services.