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


Vying for ‘Toughest Cop’

The magazine’s legal wiz offers his take on the heated battle for top bad-cop status between the Federal Trade Commission and the Consumer Financial Protection Bureau.

September 2012, F&I and Showroom - Feature

by Tom Hudson

Looking for a shorthand version of what’s going on in Washington, D.C., and with the federal agencies that regulate the car finance and leasing business? Here’s my down-and-dirty take.

Congress passed the Dodd-Frank Act in July 2010. The DFA created the new federal Consumer Financial Protection Bureau (CFPB) and named it the chief protector of consumers’ financial affairs. Alarmed at the possibility of a tough new federal regulator for its members, the National Automobile Dealers Association (NADA) lobbied for, and was granted, an exemption for certain dealers (franchised dealers and independents with car-repair capabilities and who do not hold their own finance contracts). The exemption carried a price, however: In granting it, Congress gave new powers to the Federal Trade Commission (FTC), the policeman for the exempted dealers.

The newly emboldened FTC announced in early 2011 that it would hold so-called “roundtables” on auto  finance issues. During the year, the commission held three such events. Officials heard consumer complaints and industry responses on a number of issues, including dealer participation, discrimination, spot deliveries, advertising, credit to members of the military and consumer education.

A little more than halfway through 2011, the bureau came into being. It spent several months buying pencils and legal pads, hiring staff and getting organized. Then, in late fall of 2011, the bureau and the FTC started trying to prove which agency is the tougher cop on the Washington beat.

In December 2011, the CFPB called for whistle-blowers to tell them tales of creditor and dealer illegal practices.

On Feb.  21 of this year, the CFPB announced that it was “declaring war on discrimination.” Of course, anti-discrimination is as wholesome as apple pie, and the bureau’s folks had picked up consumer advocates’ complaints — unsupported by credible data — that discrimination is common in car financing, so this one was predictable.

Not to be shown up, on March 14, the FTC hammered five car dealers for negative equity ads. The ads were typical of ads used by dealers all over the country, and were not misleading to anyone bright enough to know that dealers don’t give away money. But the FTC said they were deceptive, so the dealers caved and settled the charges.

Then on April 24, the CFPB announced it would study the use of arbitration agreements. The study process will likely take a couple of years, after which, I’m pretty sure, the bureau will ban the use of them.

On May 12, the FTC explained its “Holder Rule.” That’s the rule that says consumers can assert against finance companies’ claims and defenses that they have against dealers who sell the finance companies retail installment contracts. Some courts interpreted the rule in a manner that was unfavorable to consumers. The FTC’s announcement was designed to correct what the agency saw as a mistake by the courts.

Then, on June 7, the FTC announced an enforcement action against a dealer for privacy leaks caused by an employee’s use of peer-to-peer software.

Lastly, the CFPB announced on July 18 its first public enforcement action. The bureau ordered Capital One's credit card division to refund approximately $140 million to two million customers and pay an additional $25 million penalty to the CFPB’s Civil Penalty Fund. The action identified deceptive marketing tactics used by Capital One’s call-center vendors to pressure or mislead consumers with low credit scores or low credit limits into paying for “add-on products.”

The CFPB’s press release claimed that Capital One customers were misled about the products’ benefits, deceived about the nature of the products, misled about eligibility, misinformed about the products’ cost, and enrolled without their consent. If you think this development involving credit card operations doesn’t apply to the car business, think again.

The bureau, with its action, is basically holding a creditor responsible for the actions of its service providers, something the FTC could do as well.

This contest between the FTC and the CFPB is likely to continue into the foreseeable future. Each agency will be looking for big headlines and big penalties. If you’ve ever thought about moving your business to, say, Australia, this might be a good time.


  1. 1. howell clark [ September 26, 2012 @ 07:50AM ]

    frank-dodd was never about anything but growth and over reach of government using a popular little guy needs protection from the profit monsters lurking in banks and car dealer f&i offices to swell their public work force numbers .

  2. 2. Walt Massey [ October 14, 2012 @ 08:27AM ]

    Vote on Nov 6th and we can get rid of DFA and CFPB!!!!


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