Category: Compliance

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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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Compliance

Recognizing Bad Actors

The Association of Certified Fraud Examiners (ACFE) calls it the Fraud Triangle – pressure, opportunity and rationalization. But dealers and auto lenders call it, “Yet one more thing to deal with during the pandemic.” As economic stressors continue and employees are increasingly burdened with coronavirus countermeasures, the risk of auto lending fraud slipping through the cracks grows.  

How can you keep your credit union – and your dealer partners safe? Keep an eye out for the traditional bad actors as well as the new tricks these bad actors are deploying.

During the early days of the pandemic, dealership doors were shuttered and consumers remained sheltered-in-place. The trend toward digital sales accelerated, with dealerships forced to conduct business online and via phone. For Group 1, one of the largest auto retailers in the nation, online-generated sales tripled in May compared to pre-COVID-19 usage.

An online-only platform means verifying financial details and detecting fraud before the deal is passed to the lender has become more challenging. According to a recent report from Javelin Strategy & Research, total identity fraud losses reached $16.9 billion in 2019.  Account takeovers rose 72 percent in 2019, with the criminal taking over a full account in more than half of the instances. When taking over an account, criminals assume an identity with multiple account updates such as:

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