Prospective Creep of CFPB into Auto Finance
The Consumer Financial Protection Bureau’s (“CFPB”) newly-appointed Director, Richard Cordray, is no friend of auto dealers. When he was Attorney General of Ohio, Mr. Cordray brought numerous actions against dealers for alleged violations of Ohio’s tough Consumer Sales Practices Act.
“Many consumers today are struggling to save for big purchases,” said Cordray in bringing an action against an Ohio dealer group. “When they are finally able to make the purchase and end up deceived, it makes the harm done that much more egregious. Consumers who find that they have been deceived should file a complaint with my office through www.SpeakOutOhio.gov.” It is worth noting that Cordray has established a similar consumer complaint site at the CFPB.
Already, Cordray has announced his agency is actively looking at buy-here-pay-here dealers (“We’re concerned about it,” said Cordray). Although the CFPB does not have supervisory authority over franchised dealers, the agency has oversight of buy-here-pay-here dealers, who directly lend to consumers, as well as having broad powers to prohibit unfair, deceptive, or abusive practices in the consumer financial services industry generally. These regulations will apply to auto dealers as well as other creditors.
Additionally, the CFPB entered into a “Memorandum of Understanding” (“MOU”) with the Federal Trade Commission (“FTC”) which does have supervisory and enforcement powers against dealers. In summary, the MOU provides for the two agencies to cooperate in rule-writing and share information about consumer complaints and alleged wrongful practices involving consumer finance, which includes consumer auto finance. The agencies announced they will “coordinate efforts to protect consumers and avoid duplication of federal law enforcement and regulatory efforts.”
Among the points the two agencies have agreed to:
- meet regularly to coordinate upcoming law enforcement, rulemaking, and other activities;
- inform the other agency, absent exigent circumstances, prior to initiating an investigation or bringing an enforcement action. This notice will prevent duplicative or conflicting enforcement efforts and undue burdens on industry;
- consult on rulemaking and guidance initiatives to promote consistency and reflect the experience and expertise of both agencies;
- cooperate on consumer education efforts to promote consistency of messages and maximum use of resources; and
- share consumer complaints
Cordray’s pro-consumer agenda and the CFPB’s power to issue new regulations, especially those that will define “abusive” trade practices, should be enough of a subject of concern. But it goes deeper. It is likely that Cordray, a former litigator with no regulatory or business management background, will use the MOU to both provide information to the FTC as well as encourage it to write regulations or bring enforcement actions under Section 5 of the FTC Act against auto dealers. Armed with new streamlined rulemaking authority for auto dealers under the Dodd-Frank Act, the FTC conducted three panel roundtable hearings on auto finance practices last year and the consumer bar was well represented. Aligning with Cordray and the CFPB can be seen as further pushing the FTC to a pro-consumer (and possibly an anti-dealer) agenda in issuing regulations under its new authority. Sharing of complaints collected by the CFPB through its complaint hotline and other investigations will identify the bad actors as well as practices both agencies will want to prohibit or limit.
So 2012 is not the year to play fast and loose with compliance. With people like Richard Cordray watching, it is important that you tie up loose compliance ends in your dealership and be prepared to show that every deal was transparent to the consumer (a top priority of the CFPB) and properly documented. Privacy and data security—priorities of the FTC—are also critical compliance areas to focus your efforts this year. It may take a while, but once these two agencies begin to operate under the MOU for both enforcement and regulatory purposes, auto dealers may be the ones left scrambling. And don’t forget that the Dodd-Frank Act also gives state Attorneys General (with which the CFPB also has cooperation agreements) increased enforcement authority for violations of federal consumer protection law as well as state law such as Unfair and Deceptive Acts and Practices statutes like Ohio’s Consumer Sales Practices Act. The CFPB, FTC, and AGs may become a three-headed monster so make sure everything you do—from advertising to aftermarket selling—is compliant with federal and state laws and regulations.
Randy Henrick is Associate General Counsel and lead Compliance Counsel for DealerTrack, Inc. This article is intended for information purposes only and does not constitute the giving of legal or compliance advice to any person or entity. Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on your particular situations from a knowledgeable attorney or compliance professional licensed to practice in your state.
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