CFPB Upheaval

The Consumer Financial Protection Bureau (CFPB) had a busy first quarter defending itself. In the process of appealing the ruling from the U.S. Court of Appeals for the District of Columbia calling the CFPB “unconstitutionally structured,” the Department of Justice (DOJ) and 15 state Attorneys General joined the fray of government entities agreeing with the initial ruling.

The DOJ told the D.C. Circuit Court that the ruling should be upheld in its entirety, including the remedy to give President Trump full authority to remove the CFPB’s director at will. Just recently, the American Financial Services Association (AFSA) has joined the call to curb CFPB authority when they submitted a list of suggested regulatory reforms to the Trump administration. At the top of their list, was, of course, a halt to CFPB examinations and a moratorium on the use of disparate impact theory.

Lastly, in the case of Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., the Supreme Court ruled that Congress specifically intended to include disparate impact claims in the Fair Housing Act, but required plaintiffs to prove that a defendant’s policies could cause disparity. This ruling has significant implications for the CFPB in terms of how it determines disparate impact in auto finance.

The majority opinion, written by Justice Kennedy, was worded to discourage plaintiffs from abusing the disparate impact claim, by having them prove the claim in four ways:

1. The plaintiff must identify a specific policy causing the discrimination.
2. The plaintiff’s argument cannot be based solely on statistical evidence.
3. The plaintiff must demonstrate causality as well as correlation between a disputed policy and the alleged discriminatory effect.
4. The plaintiff must prove that a less discriminatory way to meet the legitimate goal of the disputed policy exists.

This ruling places a heavier burden of proof on the CFPB, and has caused them to shift gears away from using disparate impact as an enforcement model. During this time of upheaval, the CFPB has still worked to maintain current operations in a supervisory capacity. In a recent interview with Subprime News, Hudson Cook’s Lucy Morris, a former deputy enforcement director at the CFPB, stated, “From what I can tell, the CFPB is still going strong on the enforcement and supervision side. Notwithstanding that there’s been a lot of political talk, it’s not clear to me that there is going to be any immediate changes to the CFPB, either in its leadership or structure. In fact, there’s been a ramping up on the supervision side, in particular in auto finance.”

Regardless, none of what has occurred provides permission to discriminate, and the CFPB’s new focus on supervision does not mean that lenders and dealers cannot be held liable for discrimination. In fact, you can expect a few states, such as California, New York, and Illinois to escalate enforcement actions against lenders.

So, what now? With the CFPB’s heightened focus on auto finance, lenders have been under pressure to demonstrate dealership compliance. To date, lenders have put the onus on dealers to provide compliance documentation that they can then provide the CFPB. However, most dealers don’t know how comprehensive that documentation can be until they get the letter from you asking for it.

Ask yourself, is there a better way to build a partnership around compliance with your dealer partners? Sit down with them and provide an overview of the changes your institution has made over the years to heighten compliance and discuss how that has affected their business.

• Are your dealers regularly using rate deviation logs?
• Are they correctly identifying Red Flags?
• Are they sending out Privacy Notices the way they should?
• What procedures do they have in place to protect consumers’ non-public information?
• Is there a more efficient way of maintaining compliance in your institution, or on the dealership side, that can eliminate wasted time and money?

If you take the approach of communicating with your dealer partners and working together to ensure compliance, you actually have a better opportunity to grow that business. The more willing you are to work with them, the more willing they will be to work with you.

Remember, when working with dealers, keep it short and simple. Dealers are tired of hearing legal jargon, and don’t appreciate wasting valuable time to decipher multilayered compliance strategies. Give them actionionable items and be ready to answer their questions in layman terms.

At EFG Companies, we’ve taken some steps to ease the burden of working with dealerships to ensure compliance. Our new Common Sense Compliance^® platform is chock-full of easy-to-use tools in plain language. From bite-sized three-minute YouTube videos to podcasts featuring industry experts, we have developed materials that will appeal to everyone in the dealership.

Check out and share our Guide to Common Sense Compliance with your dealership partners, take a look at our YouTube Videos, and listen to our Compliance Podcast with host, Steve Roennau, the AFIP- and NAF-certified Vice President of Compliance at EFG. For a productive and successful partnership with your dealer clients, contact us to see how we can prepare you for whatever the current political climate throws your way.