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Compliance

Consumers Keen on Compliance

Earlier this summer, the Consumer Financial Protection Bureau (CFPB) shared its initial findings from the Auto Finance Data Pilot, an initiative designed to monitor the auto loan market for consumer risks. The pilot involves collecting data from nine large auto lenders, representing a cross-section of the market. The CFPB found that consumers who financed negative equity from a prior vehicle into a new auto loan were more likely to have their account assigned to repossession, larger auto loans, lower credit scores, lower income, and longer loan terms.

Some consumer advocate groups have urged the bureau to go farther, capturing auto lending data on buy-here/pay-here dealerships and predatory lending targeting military servicemembers. According to a letter sent to the bureau, the Consumer Federation of America, the National Consumer Law Center and Americans for Financial Reform Education Fund urged the bureau to do the following:

  • collect data on auto financing from credit unions, so that the Bureau can compare outcomes of consumers who financed directly with a credit union with similarly situated consumers who obtained an “indirect loan” from a credit union through a dealership
  • expand the data collection requirements to apply to “Buy Here Pay Here” dealerships, and to evaluate their use of pre-dispute arbitration agreements, as the Consumer Groups believe that these dealerships may cause consumer harm that goes unchecked
  • collect data concerning auto leases to ensure that dealers pass tax credits on to consumers who lease clean vehicles
  • collect data related to “language access, including language preferences, ease of accessibility, translation efforts, and other customer service practices.”
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Compliance

Here to Stay

Recently, the Supreme Court reversed a decision by a federal appeals court in Louisiana, rejecting a challenge concerning the constitutionality of the funding structure of the Consumer Financial Protection Bureau (CFPB). The case originated from a challenge by industry groups to a “payday lending” rule issued by the CFPB in 2017. By approving the CFPB’s funding from the Federal Reserve, rather than through the congressional appropriations process, the ruling protects the agency from future funding threats.

Reinvigorated by the Supreme Court’s decision, the independent agency, which is responsible for enforcing consumer finance laws, has shown signs that it intends to move forward with all activities—rulemaking, investigation, and enforcement—at full speed. Agree or disagree with their role and existence, the CFPB is here to stay and credit union leaders should make sure they are in full compliance.

In a recent interview with NPR, CFPB director Rohit Chopra provided some insight into the agency’s mission, approach to consumer protection and fraud investigation. Born out of the Great Recession, the CFPB receives over 200,000 consumer complaints each month and works to address financial scams and fraud. In fact, the agency plans to issue a delayed auto lending report, outlining the results of its inquiry into the portfolios of nine auto lenders. While the specific details regarding the content of the report are not yet available, anticipated topics will include affordability, practices in loan servicing and collections, as well as competition among subprime lenders.

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Compliance

Protecting Your Institution with Compliance

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

In the wake of large natural disasters like Hurricanes Harvey, Irma and Maria, lenders tend to see an upsurge in credit applications for auto loans. In fact, strategic lenders provide financial relief in the affected areas, offering better rates, 0% APR, alternative payment arrangements, and even payment relief. These efforts help consumers get back on their feet; they help the local economy; and, they help lenders capture more auto loan volume. However, no good deed goes unpunished because this relaxing of credit standards has the potential to make it easier for criminals to perpetuate identity fraud.

Think about it for a minute.

Your institution is processing more credit applications for auto loans than it has in the last three months. Your team is stressed and overworked as they try to capture as much business as possible. You’ve temporarily relaxed your standards as consumers with totaled vehicles are trying to trade them in even though they are upside down in their current auto loan. How easy do you think it would be for a person with the social security number of a relative, and who knows previous addresses and phone numbers, to slip through the system?

While relaxing your lending standards to help consumers affected by natural disasters is a noble idea that is beneficial for consumers, dealers, and your institution, it’s also important to stay vigilant on your compliance procedures. Do your due diligence:

  • Provide additional fraud detection training for your loan officers.
  • Work with your technology provider to implement additional stipulations and/or identity verification questions for all loan applications.
  • Ensure any updates to your procedures are documented.
  • Make sure all indirect consumer loans are standardized.
  • Monitor and document all training, forms and compliance efforts.

Of course, there’s only so much you can do to detect and prevent identity theft when consumers apply for credit through a dealership. That’s why it’s so important to develop strong dealership relationships. Remember, dealers are facing the same issues when it comes to preventing fraud. And, they are just as motivated to work with you to enhance their identity theft prevention process.

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