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CFPB – A Year in Review

Contributing Author: Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

A lot has happened with the Consumer Financial Protection Bureau (CFPB) in the past year. From large settlements to court rulings, the CFPB brought itself under the spotlight.

Let’s start at about this time last year. The House of Representatives passed H.R. 1737, the “Reforming CFPB Indirect Auto Financing Guidance Act” with a strikingly majority vote of 332-92. The piece of legislation would direct the CFPB to amend how it issues guidance to indirect auto lenders by:

  • providing a public notice and comment period before issuing the guidance in final form;
  • making publicly available all information relied on by the CFPB, while also redacting any information exempt from disclosure under the Freedom of Information Act;
  • consulting with the Board of Governors of the Federal Reserve System, the Federal Trade Commission, and the Department of Justice; and,
  • study the costs and impacts of the guidance to consumers, as well as women-owned and minority-owned small businesses.

In addition, the bill would nullify the CFPB’s “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act Bulletin”. This bulletin instructed lenders to either eliminate dealer pricing discretion, or constrain dealer pricing discretion by monitoring dealership practices and using “controls” to force dealerships to adjust their practices.

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Compliance

Impact of the Toyota Settlement

Contributing Author: Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

After undergoing a stringent investigation by the Consumer Financial Protection Bureau (CFPB) and the Department of Justice, Toyota Motor Credit Corp (TMCC) reached a “voluntary” resolution this past January to address alleged discriminatory practices in its loan pricing.

Of all of the lenders anticipating a CFPB investigation, TMCC was arguably the most prepared, having completed a very thorough overhaul of their compliance procedures based on CFPB industry recommendations. If anyone was going to come out the other end of a CFPB investigation unscathed, it might well have been them.

Nevertheless, it seems that the CFPB’s agenda to use lenders to regulate dealers was not appeased with anything less than sweeping caps on dealer reserve. TMCC joined the growing list of lenders to cap dealer markup at 125 basis points for loan terms up to 60 months, and 100 basis points for loan terms longer than 60 months. And, as with previous settlements with other lenders, TMCC retains the right to pay dealers a flat fee for setting up the loan in addition to the approved dealer markup.

The TMCC settlement is momentous to the industry because the CFPB appears to have settled on a way to regulate auto lending without implementing an industry-wide flat, but rather with capping dealer markup.

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Compliance

The Supreme Court Upholds Disparate Impact. Now What?

Contributing Author: John Stephens

 

Contributing Author: John Stephens, Senior Vice President, Dealer Services, EFG Companies

Last month was a big month for the CFPB. The Supreme Court of the United States held in the case of Texas Department of Housing and Community Affairs et al. v. Inclusive Communities Project, Inc., that “disparate-impact claims are cognizable under the Fair Housing Act.” The CFPB established their Larger Participant Rule, putting captive finance companies under their jurisdiction. And, BB&T announced the launch of a nondiscretionary dealer compensation program that prohibits dealer markup and offers a flat-fee dealer compensation program.

Right now, you can’t read the news without seeing an article about the CFPB and speculation on what the industry will look like in the coming months. Rumors abound that three captives currently under CFPB investigation, Honda, Nissan and Toyota, will cap dealer markup.

Just recently, Honda Finance Corporation reached a resolution with the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ), where it agreed to change its pricing and compensation system to “substantially reduce dealer discretion and minimize the risks of discrimination,” and to pay $24 million in restitution to affected minority borrowers. While the jury is still out on Nissan and Toyota, lenders have a unique opportunity to take advantage of all this activity.

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