Richard Cordray, the head of the Consumer Financial Protection Bureau, is making it clear he and his federal agency do not care for dealerships and their financing practices.
He believes his agency not only oversees auto lending, but dictates terms as well. The U.S. government already is in the car business, so why not get directly involved in financing? So goes their reasoning.
In other words, the CFPB wants to run your dealership’s finance department.
In April, members of my firm, Automotive Compliance Consultants, attended the American Financial Services Assn. conference in Las Vegas. Cordray was the featured speaker.
Most of his discussion centered on auto lending, third-party providers and ancillary products sold by dealerships. It is amazing for him to spend an hour discussing dealership business when his agency has no direct jurisdiction over it.
Ninety-percent of questions from the floor for the entire conference had to do with auto lending and ancillary products. If you are one of those dealers who believe compliance is for other businesses, start paying attention.
The agency is seeking to set dealer compensation for involvement in the loan process, establish what you can sell as an ancillary product and determine what you can charge for that product.
Of course, Cordray denies this, saying it is not the agency’s intent to set prices, only to ensure that consumers receive a product that provides value at a reasonable price.
The fallacy of this statement is that the CFPB has already played its hand, and it is heavy.
It has been collecting auto-loan data from lenders. Running it through its software programs, it has determined some dealerships are violating the Equal Credit Opportunity Act.
Apparently this data collection and analysis has lead CFPB to find a disparate impact on minorities and those protected under the act. To the CFPB, dealer auto financing markups are a no-no.
The agency can’t tell a lender how to compensate a dealer involved in the loan process, but it can go after lenders and hold them responsible for what the agency believes to be discrimination based on disparate impact.
The use of disparate impact to show discrimination under the Equal Credit Opportunity Act is controversial, but the CFPB has the resources to accept any challenge.
It is the bureau’s opinion that lenders shouldn’t allow dealers to mark-up rates. Auto lenders have been made aware that the CFPB will hold them directly responsible for all conduct of its third-party associates, including dealerships.
So how do you protect your dealership and your lender relations?
- Audit transactions on a regular basis to ensure rates are being established on a uniform basis.
- Have these audits conducted by someone whose compensation does not depend on income derived by financing.
- Review ancillary products sold to determine value a consumer derives from them and the relationship between cost and value.
- Weed out and remove employees who take advantage of consumers in the financing transaction.
It is clear the CFPB seeks to remove dealer compensatory participation in auto loans. The agency wants the dealer to do all the work, but not be paid for the effort.
Dealerships need to be vigilant in complying with all financial regulations and guidelines. The CFPB is sparing no expense to audit and control what goes on in your store even though it has no real jurisdiction over you.
CFPB is actively working with state attorneys general, the Federal Trade Commission and other government agencies to monitor and go after dealerships it has no direct control over.
What is emerging is a truly a new era for your store and compliance.
David R. Missimer is vice president and general counsel for Automotive Compliance Consultants, a dealership compliance, consulting, audit, and training company. He is at firstname.lastname@example.org.