The Industry's Leading Source For F&I, Sales And Technology


A Tale of Two Agencies

Do you know who your regulator is? The answer may not be as clear-cut as you think. The magazine’s legal wiz weighs in.

October 2011, F&I and Showroom - Feature

by Michael A. Benoit

Many of my clients have been asking me what to expect from the new regulatory environment we find ourselves in. With the passage of the Dodd-Frank Act, it’s truly a brave new world. More surprising is how many clients are asking me who their federal regulator is. Believe it or not, that’s not a stupid question, especially for dealers who have always been regulated by the Federal Trade Commission (FTC).

By this time, all of you should have gotten the memo regarding the new Consumer Financial Protection Bureau (CFPB). The agency’s job is to write and enforce new and existing federal consumer financial protection laws, including the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and just about any other federal law that touches your F&I business. It pretty much has authority over all providers of consumer financial products or services.

At this point, you might be asking yourself, “Didn’t auto dealers get a pass on CFPB jurisdiction? Isn’t the FTC still our regulator?”

The answer to those questions depends on what kind of dealer you are. Are you a duly licensed dealer who sells and/or leases motor vehicles, services motor vehicles and routinely sells retail installment sale contracts to unaffiliated third-party finance companies? If so, then you’re an FTC-regulated dealer.

The CFPB can’t write a rule that applies to FTC dealers, nor can it enforce your compliance with rules. For you, it’s the FTC all the way. But it’s not business as usual. The FTC can now write and enforce rules applicable to FTC dealers that define and prohibit unfair and deceptive acts and practices.

If any of the three criteria are absent, you fall under the CFPB’s jurisdiction. And if you are such a dealer, you are subject to the agency’s rulemaking powers, including its definitions on what it deems unfair, deceptive and abusive acts and practices.

“Abusive” has become the new standard, but we haven’t yet figured out an objective way to determine whether an abusive act is unfair or deceptive, or whether an unfair or deceptive act is, per se, abusive. Nor have we figured out why CFPB dealers may have rules prohibiting abusive acts but FTC dealers will not. Anyone confused yet? But wait, it gets better.

The CFPB can make amendments to existing regulations that currently apply to all dealers, but those amendments won’t, on their own, apply to FTC dealers. Nor can the CFPB enforce rules against FTC dealers. This leaves the door open for a situation where universal consumer financial protection laws apply to some entities and not to others, even if they are offering the same financial product or service. That problem occurred to Congress, so they made a patch.

What Congress did was get the Federal Reserve Board involved in the rulemaking process. So, if an amendment is made to Regulation Z, it will be jointly published by the FRB and the CFPB. The amendment will look the same, but it will be codified in two different places so it can apply to different entities. In the case of dealers, this patch will allow that amendment to apply to both CFPB and FTC dealers.

Obviously, this knuckle-headed and bifurcated regulatory system isn’t going to work, at least not well. It wouldn’t be the first time Congress did something knuckle-headed, but unlike Congress, we all live in the real world. So the question becomes, how do we reconcile this dual system?

I don’t know what the CFPB and the FTC will do, but they must see the inefficiency of this awkward regulatory scheme. If I had to read the tea leaves, I would guess that they would find a way to vest primary authority over all dealers in one agency or the other. In this case, it would make sense to vest that authority in the FTC. Congress was pretty explicit about the CFPB keeping its hands off of FTC dealers and it was clear-sighted enough to give the FTC concurrent jurisdiction over CFPB dealers.

So will the FTC be your federal regulator? I don’t know, but that’s what would make sense to me. The irony is that if they go this route, the FTC was the primary federal regulator for auto dealers before all this financial reform drama, and we’ll have to come full circle back to where we started. How rich is that?

Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. He can be reached at Nothing in this article is legal advice and should not be taken as such. Please address all legal questions to your counsel.

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  


So Here's the Deal

Ronald J. Reahard
(Video) Selling Eight Products Without Losing the Customer

By Ronald J. Reahard
Is offering eight products a bad idea? The magazine’s resident F&I pro says it depends on the producer and the presentation.

He Had a Goal: Remembering David Ressler

By Ronald J. Reahard
Sometimes it’s not the teacher who leaves a lasting impression, it’s the student. The magazine’s resident F&I pro says goodbye to one trainee he will never forget.

[Video] Selling to Short-Term Owners

By Ronald J. Reahard

(Video) Selling High-Mileage VSC Plans

By Ronald J. Reahard

Done Deal

Gregory Arroyo
Who Will Take Up the CFPB's Torch?

By Gregory Arroyo
The CFPB’s acting director tells state regulators there will no longer be ‘regulation by enforcement,” but the editor believes there’s a long list of regulators waiting to take up the torch.

Military Lending Act Guidance: The Gift That Keeps On Giving

By Gregory Arroyo
Thanks could be in order when the industry gets together for NADA 2018, as the editor hears that a resolution to the Military Lending Act controversy isn’t far off.

Resolution Needed

By Gregory Arroyo

Rescinding the CFPB’s Auto Finance Guidance

By Gregory Arroyo

Mad Marv

Marv Eleazer
Proper Deal Structure Moves Mountains

By Marv Eleazer
His Madness has a simple but powerful piece of advice for newbie F&I managers and those struggling to adapt to the way finance sources are rating credit-challenged car buyers.

Show Us Some Love

By Marv Eleazer
His Madness has a message for dealers walking the show floor at NADA 2018: Don’t forget about the people who drive your business.

Chargeback Prevention

By Marv Eleazer

Your F&I Backup Plan

By Marv Eleazer

On the Point

Jim Ziegler
Sharpen Your Survival Skills

By Jim Ziegler
‘Da Man’ has a plan you can use to survive the collapse of the car business and remain profitable through the dealer apocalypse.

Sales Rock Stars Still Exist

By Jim Ziegler
Da Man says $40,000-a-month sales rock stars still exist. He says you’ll find them on YouTube and Facebook Live.

The New Stooges

By Jim Ziegler

Is Your Quick Lube Driving Away Business?

By Jim Ziegler