Auto-Lending Association Breaths Easier

LAS VEGAS – The auto-financing industry still has issues with the need for the U.S. Consumer Finance Protection Bureau, which Congress created as part of sweeping financial-reform legislation.

But the American Financial Services Assn. so far gives the watchdog agency and its newly named director, Richard Cordray, high marks in areas such as open-mindedness.

“There are good people at the bureau who are dedicated and have a lot of experience,” Association President and CEO Chris Stinebert, says at the trade group’s vehicle-finance conference held here in conjunction with the National Automobile Dealers Assn. convention.

“I don’t want to use the word ‘surprised,’ but we are encouraged,” he says. “There’s an appetite for learning and there is not shooting from the hip.”

A result of the Dodd-Frank financial reform act calling for greater government scrutiny of questionable lending practices, the CFPB officially opened in July.

After Congress stalled in agreeing on someone to head the agency, President Obama summarily appointed Cordray, a former Ohio attorney general.

“Whether you disagree with the appointment or whether the president had the right to make it, (Cordray) is an individual the finance industry will have to work with,” Stinebert says.

Harvard law professor Elizabeth Warren helped set up the CFPB early on and was seen as a likely candidate to run it. But she ran into political opposition from different camps.

Last year, at the annual AFSA vehicle-finance meeting, association officers expressed fears that she might be too zealous and heavy-handed as the potential head of the agency, especially after she said, “There’s a new sheriff in town.”

That comment rattled many people. “I think she thought she would be leading the posse,” Stinebert says.

He and his colleagues are breathing easier with Corday in charge. Concerns about the CFPB remain but they are “limited,” Stinebert says. “We want to work in a cooperative spirit with the bureau and others in Washington.”

However many conference attendees here are critical of the overseeing function of the CFBD as well as the Dodd-Frank Act that created the bureau.

“Dodd-Frank is not a good bill,” says Frank Salinger, an attorney who represents the finance industry.

The bill contains overly broad language, Michael Benoit, an attorney representing dealerships, says. “There is one reference to ‘unreasonably taking advantage of a consumer.’ My response is, ‘Where’s the line between unreasonably and reasonably taking advantage of a consumer?’”

Benoit and other conference attendees say the CFBD and Federal Trade Commission should work with lenders to achieve regulatory compliance rather than use regulations to potentially punish those who might unwitting fail to comply with every rule.

The goal should be “to get things right,” not penalize, Benoit says. “Enforcement should not be like the Foreign Legion where every now and then someone was pulled out of the line and shot” as an example to the others.

While the subprime-mortgage industry was blamed for predatory and reckless lending practices, the auto-finance sector has maintained a much cleaner record, says Frank Armstrong, chairman of the AFSA’s vehicle-financing division.

“We want to do the right thing. As we talk to the CFPB, we invite them to look closely at what we’ve done.”

In some cases, the new federal agency has sent staffers to set up temporary shop at lenders’ offices, ask questions and go through the books. Lenders say it can be particularly chilling when agency lawyers are part of the official visit.

“If you are a lender, you are much more cautious about what you say when lawyers are present,” a conference attendee tells WardsAuto. “If a compliance issue is raised, and a lawyer isn’t there, you might basically acknowledge a problem needs to be fixed and then fix it.

“With a lawyer there, you admit nothing for fear it will come back against you,” he says.

Salinger agrees. “Sending a lawyer to a meeting like that is like sending in a human subpoena.” The agency and the Federal Trade Commission are considering the possibility of stepping up regulations affecting auto financing and indirect lending involving dealers as middlemen. Nationwide, the FTC has held a series of “town hall” meetings on vehicle financing.

“We may see pressures on dealer financing,” says Bill Himpler, the AFSA’s executive vice president, adding that because this is an election year, it could become “a silly season.”

But most Americans are not avidly watching the activities of the CFPD, says Larry Sabato, an election analyst and University of Virginia professor. “Do you think the average person has ever heard of Richard Cordray?”

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