Category: Compliance

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Compliance F&I

The Supreme Court Upholds Disparate Impact. Now What?

Karen Klees, Certified Consumer Credit Compliance Professional

 

Contributed Author: Karen Klees, Certified Consumer Credit Compliance Professional, EFG Companies

June was a big month for the Consumer Financial Protection Bureau (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 recognizable 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 CFPB and the Department of Justice, 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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Compliance F&I

How are You Embracing Change?

Karen Klees, Certified Consumer Credit Compliance Professional

 

Contributing Author: Karen Klees, Certified Consumer Credit Compliance Professional, EFG Companies

Recently, U.S. Bank issued a letter to its dealer partners describing the bank’s policy with regards to fair and responsible lending. Well, that in itself is not news. Lenders have been issuing letters of this nature for the past few years. However, this letter did mark a significant milestone since the CFPB’s regulation of the retail lending industry. In this letter, U.S. Bank became the first lender to explain a monitoring program with a heavy focus on how F&I products are priced and sold.

To date, even with state regulations on F&I pricing, dealers have had substantial leeway to set their margins. While third-party administrators set risk-based costs for each product, dealers have the opportunity to set their margin based on how much money a lender will advance.

Along with potential reserve for originations, setting F&I product margins is the finance department’s primary way to generate profit. Because of this reliance, dealerships are very concerned about lending oversight. Meanwhile, U.S. Bank is taking what they believe is a proactive step to monitor pricing before any regulatory decisions are made. And, it’s likely that other lending institutions will observe this practice closely to hone their internal best practices.

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Compliance F&I

Control is an Advantage with Non-Interest Income

Karen Klees, Certified Consumer Credit Compliance Professional

 

Contributing Author: Karen Klees, Certified Consumer Credit Compliance Professional, EFG Companies

In a new world order of uber-competitive interest rates and shrinking profit margins, a significant number of lenders are supplementing revenues by promoting and marketing privately-labeled consumer protection products.  While still reeling from the implementation of formal compliance processes relative to financing, discussion has grown louder regarding FTC and CFPB involvement in the oversight of the sale of F&I products.

There are many elements to consider as you review your current policies and procedures for your existing product offerings.  On a positive note, having a suite of private-labeled products provides the ultimate control in pricing (and profit), and significantly more control in making sure your product offering passes the litmus test from a consumer perspective.

This being said, applying compliance standards and scrutiny to the partners you have chosen to be a third party administrator or insurer is growing in importance.  A recommended starting point, as you evaluate or re-evaluate product offering, is to ask a simple question:  Does the product’s benefits fulfill a real and mathematically calculable customer need (or have risk)?

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