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Compliance

FTC Amendments Strive To Keep Up with Technology

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

In April, the Federal Trade Commission (FTC) published in the Federal Register its proposed amendments to the 2000 Privacy Rule and 2003 Safeguards Rule. The genesis of these amendments is based on the FTC’s enforcement experience, and are intended to keep pace with technological developments within the financial industry. The proposed revisions relevant to automotive lenders fall under the Gramm Leach Bliley Act (GLBA).

Changes to the Privacy Rule

Revisions to the Privacy Rule would result in two substantive changes:

  1. The scope and definition of “financial institution” was modified to include entities that are engaged in activities that are incidental to financial activities, to bring both rules into accordance with the CFPB’s Regulation P (Privacy of Consumer Financial Information).
  2. The annual privacy notice requirements were modified to implement statutory changes to the GLBA enacted by the Fixing America’s Surface Transportation Act (the FAST Act).

The FAST Act established that a financial institution is not required to provide an annual privacy notice under the Privacy Rule if it:

  • only shares NPI with nonaffiliated third parties in a manner that does not require notice of an opt-out right to be provided to its customers; and,
  • has not changed its privacy policies and practices with respect to the disclosure of NPI since it last provided a privacy notice to its customers.

The CFPB published a final rule to implement these statutory changes in September 2018. The FTC’s proposal would amend the annual notice requirements to bring it in line with the FAST Act and the CFPB regulations.

Categories
Compliance

We’ve Been Down this Path

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

The Consumer Financial Protection Bureau (CFPB) has been in the news a lot lately.

From Acting Director Mick Mulvany’s decommissioning of the Advisory Committee, to a federal district judge ruling its structure is unconstitutional, some might think that the CFPB’s days are numbered.

But history has a lesson to offer, compliments of the Federal Trade Commission (FTC). The FTC was created on September 26, 1914, when President Woodrow Wilson signed the Federal Trade Commission Act into law. The regulatory agency opened its doors in 1915, with a mission to protect consumers and promote competition. The FTC building was finished in 1938, with President Franklin D. Roosevelt stating, “May this permanent home of the Federal Trade Commission stand for all time as a symbol of the purpose of the government to insist on a greater application of the golden rule to conduct the corporation and business enterprises in their relationship to the body politic.”

Currently, the FTC houses three bureaus:

  1. the Bureau of Consumer Protection
  2. the Bureau of Competition
  3. the Bureau of Economics

Each bureau has a set of mandates to guide its work. In the early 1970s, the agency became more aggressive in its prosecutions and sanctions. The business community and Congress criticized the FTC’s activism, claiming it had become too powerful, was insensitive to the needs of the public and business, and operated with little oversight from Congress or the president. During President Ronald Reagan’s first term, control of the FTC was moved under the president. Its direction was modified to become more cooperative with business interests, while continuing its consumer protective functions.

A Matter of Checks and Balances

Categories
Compliance

Dealer Markup is Back in Play

Jason Hash
Contributing Author:
Jason Hash
Training Manager
EFG Companies

The 2013 Consumer Financial Protection Bureau (CFPB) regulation which held financial institutions responsible for potential discriminatory lending practices at dealerships was repealed by the President on Monday. The original 2013 CFPB bulletin was intended to address the potential for racial discrimination at dealerships by encouraging lenders to cap interest rate markup at 150 basis points, as opposed to the industry standard of 250 basis points. This was all based on disparate impact theory, which refers to practices that adversely affect protected classes of individuals, even though employer rules and practices are meant to be neutral. The CFPB used this theory to make the argument that dealer markup practices could result in unintentional discrimination during the credit process, and must therefore be reined in.

During its five-year existence, the directive prompted the implementation of flat fees as well as millions of dollars in fines charged to financial groups in the form of consent decrees. The root of the CFPB guidance took issue with the practice of dealers placing the buyer into a higher-interest deal than the lender had originally approved, and then the dealership collects the difference.

Thanks to some fancy footwork by Senator Pat Toomey (R-Pa.), who asked the Government Accountability Office (GAO) to review the CFPB’s guidance, and Senator Jerry Moran (R-Ks) for putting S.J. 57 onto the floor for a vote, the regulation, and its guidance, has ceased to exist. And, if you ask some, all is now right with the world.

Groups on many sides of the situation took issue with the ruling. Auto industry trade groups argued that the bureau used its guidance to indirectly regulate the activities of dealers, which are mostly exempt from the bureau’s oversight under the Dodd-Frank Act. In addition, they argued that the guidance would ironically have an adverse effect on the groups of people it was trying to protect by limiting a dealer’s ability to secure competitive funding. Banking and financial groups reaffirmed their commitment to fair lending practices, saying they have been regulated for years and were not to blame for dealer actions that may or may not result in unintentional discrimination.