Taking Fire - CFPB Enforcement Action Begins

Until last month, the CFPB was doing a lot more aiming than shooting. But its first enforcement action against an auto finance source and its partner company proves the agency isn’t firing blanks.

Dealertrack’s Randy Henrick weighs in on how the CFPB’s fair lending guidance will impact dealers in an F&I and Showroom Magazine article.

The CFPB does not have regulatory authority over franchised dealers and independents with car-repair capabilities and who do not hold their own finance contracts, thanks to a hard-won exemption campaigned for by the NADA in 2010. But some experts, like Dealertrack’s Associate General Counsel Randy Henrick, believe the CFPB’s focus on auto lending is how it intends to thwart this exemption.

“The [fair lending] guidance [issued in March] is an example of how the [CFPB] is trying to indirectly regulate dealers who they can’t regulate directly,” he says.

Communications from the CFPB indicate that lenders that wish to continue purchasing rate participation contracts from dealers should have comprehensive fair lending compliance programs. The agency encourages finance sources to examine disparate impact in their loan portfolios as well as on a dealer-by-dealer basis. This, Henrick says, is “a fairly onerous compliance requirement” for lenders. The bureau offers an “easy alternative”: paying dealers on a fixed-fee basis — something that dealers believe could potentially cut into profits.

“What the CFPB would like to do is get rid of dealer participation and replace it with fixed-fee pricing,” Henrick says. “That’s not going to happen.”

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