Category: Compliance

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Business Growth Compliance Economy

Will New Rules Hamper Growth?

Credit unions have notched the highest percentage of auto loan originations since 2007. Leveraging consumer inflationary concerns and lower interest rates, Experian’s “State of the Automotive Finance Market” report for the second quarter released Aug. 25 showed credit unions produced 25.8 percent of the loans and leases from lenders in the three months ending June 30, up from 18.3 percent a year earlier and 22.1 percent in this year’s first quarter. Pop the corks and let the confetti fly!

Inflation concerns are likely to remain for the rest of 2022. The Federal Reserve signaled earlier this month that it plans to continue its aggressive approach to raising interest rates, with a target of 4.0 percent. However, declining gas prices across the country prompted a notable increase in the Consumer Confidence Index for August. Purchasing intent and vacation intent also increased, indicating that monetary concerns have not made a noticeable impact on consumer behavior.

In fact, consumers have made overall improvements in their financial health since the pandemic. Experian’s Melinda Zabritski, Senior Director of Automotive Financial Solutions, has seen continued improvement in consumer credit scores over the last several years with a greater percentage falling in the prime category.

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Compliance

Data Security Compliance in 2022

According to the nonprofit Identity Theft Resource Center, more than half of all small businesses in the US experienced at least one security or data breach in 2021, a 17 percent increase from 2020, at an average expense of $250,000 to $500,000 per incident. As automotive lenders and dealers increase their use of digital sales and technology to house personal and confidential information, data breach incidents have a direct impact on both revenue and regulatory compliance.

The Safeguards Rule

The Federal Trade Commission issued a final rule that amends the Safeguards Rule (the “Rule”) that went into effect January 10, 2022. The Rule places requirements on “financial institutions” regarding information security programs and the use of customer information. The amended rule notably expands the “financial institution” definition, which is now applicable to debt collectors and certain debt buyers, among others. Many businesses are now finding themselves subject to the Rule for the first time.

Update: Prior to the revisions, the Rule required covered entities to perform a risk assessment and then develop and implement safeguards to address identified risks. Now, risk assessments must include specific criteria and be in writing.

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Compliance EFG Companies Government Regulations

Targeting GAP

If you look at the flurry of GAP-related state-level legislative bills proposed so far in 2022, you could surmise that this consumer protection tool is under fire. According to American Financial Services Association Senior Vice President Danielle Arlowe, the organization has counted 30 pieces of legislation in 2022, compared to 14 bills between 2019 – 2021. These new legislative efforts join existing statutes on the books in 11 states which require the lender to refund a consumer who cancels financed GAP coverage.

At the federal level, officials have again raised the issue that bundled GAP coverage renders the auto loan to be under the purview of the Military Lending Act (MLA). The Consumer Financial Protection Bureau, Department of Defense, and Department of Justice recently argued in the class-action lawsuit Davidson vs. United Auto Credit that loans containing a nonexempt product such as GAP would not be exempt from MLA.

These developments put retail automotive lenders in a difficult position. For example, the California Assembly Bill AB 2311 requires that customers be notified that GAP insurance is an option and requires that lenders automatically refund any GAP balances if the loan is paid early. Other components of the bill stipulate a cap on the price of the GAP insurance as well as banning its sale under certain criteria related to the amount financed. Arlowe believes the industry is at a turning point with GAP insurance and the relationship between creditor, dealer, and administrator.

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