{"id":236,"date":"2014-02-07T13:08:28","date_gmt":"2014-02-07T19:08:28","guid":{"rendered":"http:\/\/efgintelligence.com\/subprimepoint\/?p=236"},"modified":"2014-02-07T13:08:28","modified_gmt":"2014-02-07T19:08:28","slug":"are-you-frustrated-with-cfpbs-compliance-guidelines","status":"publish","type":"post","link":"https:\/\/efgintelligence.com\/lendingcurve\/are-you-frustrated-with-cfpbs-compliance-guidelines\/","title":{"rendered":"Are you frustrated with CFPB\u2019s compliance guidelines?"},"content":{"rendered":"<p><a href=\"https:\/\/i0.wp.com\/efgintelligence.com\/subprimepoint\/wp-content\/uploads\/sites\/4\/2013\/10\/Steve-Klees-Blog-Headshot.jpg\"><img data-recalc-dims=\"1\" fetchpriority=\"high\" decoding=\"async\" data-attachment-id=\"184\" data-permalink=\"https:\/\/efgintelligence.com\/lendingcurve\/five-keys-to-success-for-sub-prime-lenders-when-expanding-to-new-markets\/steve-klees-blog-headshot\/\" data-orig-file=\"https:\/\/i0.wp.com\/efgintelligence.com\/lendingcurve\/wp-content\/uploads\/sites\/4\/2013\/10\/Steve-Klees-Blog-Headshot.jpg?fit=214%2C338&amp;ssl=1\" data-orig-size=\"214,338\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;Ellen E. Martin&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;1383582262&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;}\" data-image-title=\"Steve Klees Blog Headshot\" data-image-description=\"\" data-image-caption=\"\" data-medium-file=\"https:\/\/i0.wp.com\/efgintelligence.com\/lendingcurve\/wp-content\/uploads\/sites\/4\/2013\/10\/Steve-Klees-Blog-Headshot.jpg?fit=189%2C300&amp;ssl=1\" data-large-file=\"https:\/\/i0.wp.com\/efgintelligence.com\/lendingcurve\/wp-content\/uploads\/sites\/4\/2013\/10\/Steve-Klees-Blog-Headshot.jpg?fit=214%2C338&amp;ssl=1\" class=\"alignright size-full wp-image-184\" alt=\"Contributing Author: Steve Klees\" src=\"https:\/\/i0.wp.com\/efgintelligence.com\/subprimepoint\/wp-content\/uploads\/sites\/4\/2013\/10\/Steve-Klees-Blog-Headshot.jpg?resize=214%2C338\" width=\"214\" height=\"338\" srcset=\"https:\/\/i0.wp.com\/efgintelligence.com\/lendingcurve\/wp-content\/uploads\/sites\/4\/2013\/10\/Steve-Klees-Blog-Headshot.jpg?w=214&amp;ssl=1 214w, https:\/\/i0.wp.com\/efgintelligence.com\/lendingcurve\/wp-content\/uploads\/sites\/4\/2013\/10\/Steve-Klees-Blog-Headshot.jpg?resize=189%2C300&amp;ssl=1 189w\" sizes=\"(max-width: 214px) 100vw, 214px\" \/><\/a>If you attended NADA, or have simply been following industry news, you know that compliance is this year\u2019s hot topic. In the first quarter of 2013, the <a href=\"http:\/\/www.consumerfinance.gov\/\" target=\"_blank\">Consumer Financial Protection Bureau<\/a> (CFPB) threw a monkey wrench into standard auto financing practices, causing everyone to rethink the way they do business. They announced their intention to aggressively seek out lenders whose practices could be deemed discriminatory under Regulation B from the Equal Credit Opportunity Act (ECOA).<\/p>\n<p>This regulation prohibits both intentional discrimination and practices that seem neutral but result in negative impact to customers in a protected class. According to the ECOA, customers could fall into a protected class based on their race, color, religion, national origin, sex, marital status, and age, among others.<\/p>\n<p>While the <a href=\"http:\/\/www.consumerfinance.gov\/newsroom\/consumer-financial-protection-bureau-to-hold-auto-lenders-accountable-for-illegal-discriminatory-markup\/\">CFPB<\/a> stated that they would commence audits leading to legal action against lenders, their <a href=\"http:\/\/www.consumerfinance.gov\/f\/201303_cfpb_march_-Auto-Finance-Bulletin.pdf\">guidance bulletin<\/a> left a lot to be desired. In essence, they instructed lenders to either:<\/p>\n<ul>\n<li id=\"ulist\"><span class=\"black\">eliminate dealer pricing discretion; or,<\/span><\/li>\n<li id=\"ulist\"><span class=\"black\">constrain dealer pricing discretion by monitoring dealership practices and using \u201ccontrols\u201d to force dealerships to adjust their practices.<\/span><\/li>\n<\/ul>\n<p>Throughout the rest of 2013, lenders and dealers alike continued to ask for clarification on what those \u201ccontrols\u201d should be and for CFPB\u2019s auditing process. Almost a year has passed with limited clarification. Now, NADA has come out with <a href=\"https:\/\/www.dropbox.com\/s\/h0jzzpbhby07j64\/Fair_credit_p11.pdf\" target=\"_blank\">guidelines<\/a> on how dealerships can remain compliant. They also provide two options:<\/p>\n<h3>Option One<\/h3>\n<p>Establish a means of dealer compensation where the establishment of finance income does not vary on a customer-by-customer basis. To accomplish this, dealerships would <strong>charge each customer a fixed rate<\/strong>. This rate could be a flat fee, a fixed percentage of the amount, or a fixed number of basis points over the wholesale buy rate.<\/p>\n<p>While this option makes it very easy to remain compliant, it hampers the dealerships ability to offer competitive pricing, which also limits the customer\u2019s ability to shop for the best value.<\/p>\n<h3>Option Two<\/h3>\n<p>Start with Option One, by <strong>establishing a pre-set amount of compensation<\/strong>, such as with a fixed number of basis points over the wholesale buy rate. Then, <strong>allow for downward adjustments<\/strong> of that amount should a pre-determined condition occur, such as:<\/p>\n<ul>\n<li id=\"ulist\"><span class=\"black\">the customer is not able to make the monthly payment based on the preset amount;<\/span><\/li>\n<li id=\"ulist\"><span class=\"black\">the customer has a better offer somewhere else;<\/span><\/li>\n<li id=\"ulist\"><span class=\"black\">the dealer has a promotional offer extended to all customers;<\/span><\/li>\n<li id=\"ulist\"><span class=\"black\">the transaction is eligible for a lower interest rate from the manufacturer or other finance source;<\/span><\/li>\n<li id=\"ulist\"><span class=\"black\">the customer is eligible for a dealer incentive program; or,<\/span><\/li>\n<li id=\"ulist\"><span class=\"black\">documented inventory reduction considerations.<\/span><\/li>\n<\/ul>\n<p>Option two gives dealerships more leeway to negotiate, but necessitates extensive dealership practices to ensure discrimination as defined by the CFPB is not allowed. What may be keeping you awake at night is that <strong>all transactions that deviate from the published policy must be recorded and documented<\/strong> \u2013 and we all know how meticulous F&amp;I departments are with details. The rest of NADAs guidelines include steps to ensure this option will keep dealerships compliant with Regulation B from the ECOA.<\/p>\n<h3>What this means for you<\/h3>\n<p>While these guidelines were meant for dealerships, they offer an excellent starting point for lending compliance practices, as well. As your dealerships determine which option is best for their business, it is equally important that you <strong>complete your due diligence<\/strong>. So ask yourself:<\/p>\n<ul>\n<li id=\"ulist\"><span class=\"black\">Do I have written compliance procedures?<\/span><\/li>\n<li id=\"ulist\"><span class=\"black\">Do I have standardized forms for indirect consumer loans?<\/span><\/li>\n<li id=\"ulist\"><span class=\"black\">Do my employees who interact with dealerships undergo formal compliance training at least once a year?<\/span><\/li>\n<li id=\"ulist\"><span class=\"black\">Do I monitor and document all training, forms and compliance efforts?<\/span><\/li>\n<li id=\"ulist\"><span class=\"black\">Do I have a compliance officer or department who is not in any way involved in the loan approval process?<\/span><\/li>\n<\/ul>\n<p>Each one of these elements is vital in explaining pricing disparities that might lead to potential violations. Keep these suggested guidelines in mind when you consult your legal counsel regarding your compliance initiatives. In addition, consider including compliance in your discussions with your dealership partners. Formalize a process and accountability system for your employees should they discover a discrepancy with a dealership. Implement a formal auditing process for both your institution and your dealership partners.<\/p>\n<p>You probably already have many of these measures in place, but haven\u2019t sufficiently connected them with CFPB\u2019s guidelines. Consulting with your legal counsel is the best place to start taking the frustration out of CFPB compliance.<\/p>\n<p>With over 36 years in innovating and implementing proven go-to-market strategies in the dealership space,<strong> <a href=\"http:\/\/www.efgcompanies.com\/\" target=\"_blank\">EFG Companies<\/a> understands the balance between ensuring complete compliance, and retaining and building profit margins.<\/strong> That balance lies in the value proposition. Which is why EFG structures its <a href=\"http:\/\/www.efgcompanies.com\/products.aspx\" target=\"_blank\">products<\/a> and <a href=\"http:\/\/www.efgcompanies.com\/services.aspx\" target=\"_blank\">services<\/a> to not only provide value to you, but also dealerships and the end-consumer. Our unmatched client-engagement model goes well beyond simple product innovation to mitigating liability through superior <a href=\"http:\/\/www.efgcompanies.com\/about-efg\/administrationunderwriting.aspx\" target=\"_blank\">claims processes<\/a>, and continuous <a href=\"http:\/\/www.efgcompanies.com\/services\/the-transcend-group\/training-services.aspx\" target=\"_blank\">training<\/a> and auditing practices.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you attended NADA, or have simply been following industry news, you know that compliance is this year\u2019s hot topic. In the first quarter of 2013, the Consumer Financial Protection [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[9,14],"tags":[2,55,159,58,56,57],"class_list":["post-236","post","type-post","status-publish","format-standard","hentry","category-fi","category-government-regulations","tag-cfpb","tag-consumer-financial-protection-bureau","tag-efg-companies","tag-equal-credit-opportunity-act-ecoa","tag-nada","tag-truth-in-lending-act"],"aioseo_notices":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p7ht2K-3O","jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/efgintelligence.com\/lendingcurve\/wp-json\/wp\/v2\/posts\/236","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/efgintelligence.com\/lendingcurve\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/efgintelligence.com\/lendingcurve\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/efgintelligence.com\/lendingcurve\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/efgintelligence.com\/lendingcurve\/wp-json\/wp\/v2\/comments?post=236"}],"version-history":[{"count":18,"href":"https:\/\/efgintelligence.com\/lendingcurve\/wp-json\/wp\/v2\/posts\/236\/revisions"}],"predecessor-version":[{"id":254,"href":"https:\/\/efgintelligence.com\/lendingcurve\/wp-json\/wp\/v2\/posts\/236\/revisions\/254"}],"wp:attachment":[{"href":"https:\/\/efgintelligence.com\/lendingcurve\/wp-json\/wp\/v2\/media?parent=236"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/efgintelligence.com\/lendingcurve\/wp-json\/wp\/v2\/categories?post=236"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/efgintelligence.com\/lendingcurve\/wp-json\/wp\/v2\/tags?post=236"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}