Tag: CFPB

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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

We’ve Been Down this Path

Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

The Consumer Financial Protection Bureau (CFPB) has been in the news a lot lately.

From Acting Director Mick Mulvany’s decommissioning of the Advisory Committee, to a federal district judge ruling its structure is unconstitutional, some might think that the CFPB’s days are numbered.

But history has a lesson to offer, compliments of the Federal Trade Commission (FTC). The FTC was created on September 26, 1914, when President Woodrow Wilson signed the Federal Trade Commission Act into law. The regulatory agency opened its doors in 1915, with a mission to protect consumers and promote competition. The FTC building was finished in 1938, with President Franklin D. Roosevelt stating, “May this permanent home of the Federal Trade Commission stand for all time as a symbol of the purpose of the government to insist on a greater application of the golden rule to conduct the corporation and business enterprises in their relationship to the body politic.”

Currently, the FTC houses three bureaus:

  1. the Bureau of Consumer Protection
  2. the Bureau of Competition
  3. the Bureau of Economics

Each bureau has a set of mandates to guide its work. In the early 1970s, the agency became more aggressive in its prosecutions and sanctions. The business community and Congress criticized the FTC’s activism, claiming it had become too powerful, was insensitive to the needs of the public and business, and operated with little oversight from Congress or the president. During President Ronald Reagan’s first term, control of the FTC was moved under the president. Its direction was modified to become more cooperative with business interests, while continuing its consumer protective functions.

A Matter of Checks and Balances

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Compliance

Dealer Markup is Back in Play

Jason Hash
Contributing Author:
Jason Hash
Training Manager
EFG Companies

The 2013 Consumer Financial Protection Bureau (CFPB) regulation which held financial institutions responsible for potential discriminatory lending practices at dealerships was repealed by the President on Monday. The original 2013 CFPB bulletin was intended to address the potential for racial discrimination at dealerships by encouraging lenders to cap interest rate markup at 150 basis points, as opposed to the industry standard of 250 basis points. This was all based on disparate impact theory, which 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.

During its five-year existence, the directive prompted the implementation of flat fees as well as millions of dollars in fines charged to financial groups in the form of consent decrees. The root of the CFPB guidance took issue with the practice of dealers placing the buyer into a higher-interest deal than the lender had originally approved, and then the dealership collects the difference.

Thanks to some fancy footwork by Senator Pat Toomey (R-Pa.), who asked the Government Accountability Office (GAO) to review the CFPB’s guidance, and Senator Jerry Moran (R-Ks) for putting S.J. 57 onto the floor for a vote, the regulation, and its guidance, has ceased to exist. And, if you ask some, all is now right with the world.

Groups on many sides of the situation took issue with the ruling. Auto industry trade groups argued that the bureau used its guidance to indirectly regulate the activities of dealers, which are mostly exempt from the bureau’s oversight under the Dodd-Frank Act. In addition, they argued that the guidance would ironically have an adverse effect on the groups of people it was trying to protect by limiting a dealer’s ability to secure competitive funding. Banking and financial groups reaffirmed their commitment to fair lending practices, saying they have been regulated for years and were not to blame for dealer actions that may or may not result in unintentional discrimination.

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