Category: Compliance

Say Goodbye to Disparate Impact Theory

Post author By efgmarketing
Post date May 23, 2018

Contributing Author:
Dave Gibbs
Training Manager
EFG Companies

On Monday, President Donald J. Trump signed into law the Congressional S.J. 57 resolution repealing the Consumer Financial Protection Bureau’s (CFPB) guidance on dealer markup. Originally issued in March, 2013, the auto lending guidance quickly received negative feedback. In fact, the ruling caused several finance sources to either switch to a flat-fee compensation model or enforce lower caps on dealer markups. The ruling also prompted the CFPB to impose consent orders with several institutions resulting in millions of dollars in fines.

The retail automotive industry is cheering this move, which began five months ago when the Government Accountability Office said Congress had the power under the Congressional Review Act (CRA) to overturn the CFPB guidance. But, before you start thinking the good old days are back, consider what started the industry on this path.

The CFPB’s original guidance was designed to inform lenders that it would begin enforcing the fair lending requirements of the Equal Credit Opportunity Act (ECOA) using a theory on disparate impact. This theory 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.

While the CFPB can no longer use disparate impact theory to force lenders to reduce dealer markup, the ECOA and its fair lending requirements remain in full effect. Other federal, state and local compliance regulations also remain, which prompts me to remind our clients that remaining in compliance is still in the dealership’s best interest. And, it’s highly unlikely that lenders who invested millions of dollars into comprehensive compliance platforms will suddenly reverse all those process changes.

Tags CFPB, Disparate Impact Theory, ECOA, FCC, FTC, President Donald Trump, President Trump, TILA

Compliance

Documenting Processes: More than Just Compliance

Post author By efgmarketing
Post date March 28, 2018

Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

Over the past few years, you’ve probably heard a lot about the importance of documenting your processes. Even with the changes at the CFPB, this importance is not diminished. Remember, the CFPB does not have jurisdiction over most dealerships (except Buy Here Pay Here). State Attorney Generals, the DOJ, and the FTC do. And, these government bodies haven’t undergone significant changes.

Therefore, if you haven’t already begun the process of documenting your processes, it’s time to get that project started. I’ve spoken with a lot of dealers who thought documenting processes would take an investment of thousands of dollars and a legal team. This does not have to be the case. It simply starts with taking a process that your team completes every day and writing down the steps.

Of course, with the numerous, ongoing processes in a dealership, not everyone knows where to begin. This is especially true for those processes that are simply just part of the routine. Many dealers haven’t even conceptualized how to define them beyond, “just do it”.

Just like with any big project, think about tackling this project one bite at a time. Start with the checklist on your deal jackets. Define and write down the process behind each item on the list. Each process should consist of three components:

What you do
Why you do it
How you do it

Tags CFPB, Compliance, DOJ, FTC

Compliance

The Other Side of the Domino Effect

Post author By efgmarketing
Post date March 5, 2018

Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

In July 2015, BB&T Dealer Financial Services announced the launch of flat fees as the Consumer Financial Protection Bureau (CFPB) announced the expansion of oversight to larger non-bank auto finance companies. BB&T became the third auto finance lender to change their dealer participation practices, after Chrysler Capital and Santander USA. A domino effect quickly took place, with American Honda Finance Corporation, Fifth Third Bank, and Toyota Motor Credit joined the growing number of lending institutions either reducing their cap on dealer participation, or implementing flat fees.

In February, BB&T became the first auto finance company to reverse the trend, stating in an interview with Subprime Auto Finance News that the bank would be abandoning its flat-fee dealer compensation program and introduce a more traditional auto pricing program mid-March.

While BB&T plans to eliminate flat fees, we can still expect them to be more circumspect on the dealer participation cap than in previous years. In fact, Brian Davis, BB&T’s director of corporate communications stated, “BB&T remains firmly committed to the auto finance industry and to the fair and equal treatment of all consumers.”

The fact of the matter is that it is highly unlikely that the auto finance industry as a whole will raise their dealer participation caps back to pre-CFPB levels. After all, the concept of treating customers fairly isn’t go away.