Vice President
Compliance
EFG Companies
Every lender that has undergone a Consumer Financial Protection Bureau (CFPB) investigation has been hit with extensive fines and a change in process. Even the most prepared and compliant lenders have found themselves reeling after an investigation. For example, after undergoing a stringent investigation by the CFPB and the Department of Justice, Toyota Motor Credit Corp (TMCC) reached a “voluntary” resolution to address alleged discriminatory practices in its loan pricing.
Of all of the lenders anticipating a CFPB investigation, TMCC was arguably the most prepared, having completed a very thorough overhaul of their compliance procedures based on CFPB industry recommendations. If anyone was going to come out the other end of a CFPB investigation unscathed, it might well have been them.
Nevertheless, it seems that the CFPB’s agenda to use lenders to regulate dealers was not appeased with anything less than sweeping caps on dealer reserve. TMCC joined the growing list of lenders to cap dealer markup at 125 basis points for loan terms up to 60 months, and 100 basis points for loan terms longer than 60 months. And, as with previous settlements with other lenders, TMCC retains the right to pay dealers a flat fee for setting up the loan in addition to the approved dealer markup.
The TMCC settlement is momentous to the industry because the CFPB appears to have settled on a way to regulate auto lending without implementing an industry-wide flat, but rather with capping dealer markup.