Contributing Author: Karen Klees, Certified Consumer Credit Compliance Professional, EFG Companies
The auto industry won a small victory over the Consumer Financial Protection Bureau (CFPB) in November when the House passed the Reforming CFPB Indirect Auto Financing Guidance Act. In its current form, this piece of legislation directs 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,
- Studying 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.
While this bill does put restrictions on the CFPB, it does not curtail their authority over auto lending. In addition, we can expect the bill to undergo more revisions as it must pass in the Senate and be signed by the President.
So what does this small victory mean for auto lenders? Not much. Until we see the bill in its final form, we can’t determine how it will impact auto lending compliance.
In the meantime, lenders need to stay vigilant with their compliance initiatives. This victory in no way means the industry will return to “business as usual”. Instead, it simply extends the time lenders have to ensure their compliance procedures are buttoned up.
So take the time now to complete your due diligence and ask yourself:
- Do I have documented compliance procedures?
- Are my forms for indirect consumer loans standardized?
- Are my lenders undergoing formal compliance training at least once a year?
- How do I monitor and document all training, forms and compliance efforts?
- How am I working with my dealer partners to ensure compliance?
Remember, compliance doesn’t have to be a bad thing. It doesn’t have to mean reduced loan volume or lost dealer business. In fact, compliance can mean higher customer satisfaction for you and your dealer partners, resulting in repeat business for the dealer and increased loan volume for you.
With over 38 years in innovating and implementing proven go-to-market strategies in the dealership space, EFG Companies understands the balance between ensuring complete compliance, and retaining and building profit margins. That balance lies in the value proposition.
To dealerships, a lender’s value proposition lies in their funding process. The amount you are willing to fund determines how much profit a dealer can make on a single sale. Meanwhile, consumers are simply concerned with getting the most value out of the vehicle they are purchasing. It is possible to enhance your value proposition with both audiences and manage risk with consumer protection products.
Offering products like a vehicle service contract or vehicle return on your loans help dealers increase their profit margins through the sale of upgrades, help consumers preserve their vehicle’s value and stay current on their payments, and therefore has the potential to give lenders total control over compliance of the actual product sale while also reducing risk.
EFG structures its products and services to not only provide value to you, but also dealerships and the end-consumer. Our unmatched client-engagement model goes well beyond simple product innovation to mitigating liability through superior claims processes, and continuous training and auditing practices. Contact us today to find out how we can take you to another level of compliant profitability.