Automotive Compliance and the New CFPB Rules

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.

Dis­crim­i­na­to­ry Markups

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.




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