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Where’s the Transparency?

The editor doesn’t like to be ignored, and he continues to lay into the CFPB for not heeding its own call for transparency.

April 15, 2013

When you’re wrong, you’re wrong. And when I said last month that I didn’t think the Consumer Financial Protection Bureau (CFPB) would act quickly in regards to dealer participation, well, I was wrong.

See, I felt the industry made a strong case in support of dealer participation during the Federal Trade Commission (FTC)’s three roundtable discussions back in 2011. We trotted out stats like the ones I mentioned last month: Dealers saved consumers $21 billion between 2008 and 2010 on new-vehicle financing vs. the direct channel.

It now appears that exercise was futile. My understanding was that the Dodd-Frank Act specifically called on the FTC and the bureau to work in concert when enforcing and writing new regulations aimed at protecting consumers. I thought the law also called for information sharing. But apparently that’s not happening. Worse yet, the CFPB is using its own brand of logic to determine the path it takes.

Unlike the FTC’s former Associate Director Joel Winston, who discouraged participants from using anecdotal information during the FTC’s roundtable discussions, Richard Cordray, director of the CFPB, issued this statement explaining a March 21 bulletin that laid out the agency’s expectations for lenders that employ dealer participation policies: “... potentially discriminatory markups in auto lending may result in tens of millions of dollars in consumer harm each year.”

I guess that statement may make it sound like the CFPB potentially has evidence that discriminatory pricing may be widespread since it has a potential range of damages.

Am I being snarky? Yes, I am. I guess I’m a little steamed that I can’t get one official from the CFPB to return my call. But I get it. Why tip your pitches, right? Well, because nowhere in your five-page argument — I mean, guidance — did you offer any inkling of the evidence you’ve found.

Yes, I remember when the architect behind the CFPB, Sen. Elizabeth Warren (D-Mass.), talked about how the corporate world used attorneys to find those loopholes in regulations. So why give them a headstart, right? Well, I thought this was about the consumer, not about the bureau. Maybe that’s why Ally was one of the targets of its reported investigations of dealer markup policies. I mean, what better way to prove your worth than targeting our No. 1 finance source?

Dealers come up with some clever explanations for what “AG,” the acronym for attorney general, actually stands for. I just can’t wait to hear what you come up with for the CFPB.

OK, enough with the shots. Let’s take a look at the CFPB’s
“guidance.” For much of the first three pages, the bureau makes clear its understanding of dealer markups. … Sorry, I couldn’t help myself. It then explains that the provision in the Equal Credit Opportunity Act’s Reg. B that lets creditors off the hook for another creditor’s violation doesn’t apply to dealer participation. That’s because the provision doesn’t limit a creditor’s liability for its own violation, and a policy that allows dealers to violate the ECOA would mean the creditor is liable.

Things get pretty intense on Page 4. That’s when the bureau offers an ultimatum: Eliminate dealer markups or impose controls, monitor compliance and address the issues it describes for the next page and a half.

The CFPB then recommends what it calls a “robust fair lending compliance management program,” and lists eight bullet points describing what that should entail.

For lenders not yet scared enough to eliminate dealer participation, there’s Page 5. It lists another four bullets on what the CFPB expects in terms of how finance sources communicate, monitor and correct the actions of their dealers. The last bullet notes that the CFPB wants finance sources to remunerate consumers affected by a dealer’s discriminatory pricing.

Wow. Here we had the CFPB’s Richard Hackett telling attendees of the Vehicle Finance Conference how important the people in the room — all finance sources — are to the economy, yet the bureau thinks a five-page bulletin that dedicates only two pages to actual guidance is all finance sources deserve. You know what the scary thing is? The FTC has remained silent. And just because I credited the FTC for requesting cold, hard facts rather than anecdotes doesn’t mean it won’t act.

Mad Marv reminded me the other day about the magazine’s 2010 F&I Dealer of the Year. The winner was Escanaba, Mich.-based Riverside Auto Group. Do you know what the operation’s chargeback rate was? It was 2 percent. Do you know why? The dealer chose product over rate, and it’s time the rest of us do the same.

Comments

  1. 1. David Ruggles [ May 09, 2013 @ 06:15PM ]

    YES, it is time Dealers adjust their F&I comp to emphasize product over rate. Google George Angus' recent column on the issue. But the CFPB and/or FTC has no right to get involved in this. The best thing that could happen would be for someone to drag these people into a court of law on the issue of disparate impact. They'd lose and they know it. This is why they settled a recent MN case rather than to go in front of a judge.

    Transparency? What a joke. I have been banned twice from CFPB sessions for being a member of the press. And I've been favorable to the administration overall. Of course, I received the same treatment from the Romney camp who didn't want to field questions about the candidates real views on a auto industry restructuring or his wild claims about Chrysler moving Jeep production to China.

    For the administration, this is disgraceful. I lender I visited recently told me about a regulator who was upset because the lender had copies of drivers licenses in the files, which according to the regulator, was clear evidence of discrimination. After all, you could determine skin color and gender from the picture on the license. So now I guess we don't need to have documentation on the identity of the person we're loaning money too? And if a customer comes in in person do we put a bag over them first?

    So maybe we also need to not use names for borrowers because someone might figure out that my wife is Japanese because her last name is Nakamura and double discriminate against her because she is both female and Japanese.

    Then there is the testimony at one of the roundtables where a generals wife was incensed because members of the military weren't allowed to put the lender's collateral into a container and ship it off the continent to another country.

    You can't make this stuff up, folks..

  2. 2. David Ruggles [ May 09, 2013 @ 06:15PM ]

    YES, it is time Dealers adjust their F&I comp to emphasize product over rate. Google George Angus' recent column on the issue. But the CFPB and/or FTC has no right to get involved in this. The best thing that could happen would be for someone to drag these people into a court of law on the issue of disparate impact. They'd lose and they know it. This is why they settled a recent MN case rather than to go in front of a judge.

    Transparency? What a joke. I have been banned twice from CFPB sessions for being a member of the press. And I've been favorable to the administration overall. Of course, I received the same treatment from the Romney camp who didn't want to field questions about the candidates real views on a auto industry restructuring or his wild claims about Chrysler moving Jeep production to China.

    For the administration, this is disgraceful. I lender I visited recently told me about a regulator who was upset because the lender had copies of drivers licenses in the files, which according to the regulator, was clear evidence of discrimination. After all, you could determine skin color and gender from the picture on the license. So now I guess we don't need to have documentation on the identity of the person we're loaning money too? And if a customer comes in in person do we put a bag over them first?

    So maybe we also need to not use names for borrowers because someone might figure out that my wife is Japanese because her last name is Nakamura and double discriminate against her because she is both female and Japanese.

    Then there is the testimony at one of the roundtables where a generals wife was incensed because members of the military weren't allowed to put the lender's collateral into a container and ship it off the continent to another country.

    You can't make this stuff up, folks..

  3. 3. David Ruggles [ May 09, 2013 @ 06:15PM ]

    YES, it is time Dealers adjust their F&I comp to emphasize product over rate. Google George Angus' recent column on the issue. But the CFPB and/or FTC has no right to get involved in this. The best thing that could happen would be for someone to drag these people into a court of law on the issue of disparate impact. They'd lose and they know it. This is why they settled a recent MN case rather than to go in front of a judge.

    Transparency? What a joke. I have been banned twice from CFPB sessions for being a member of the press. And I've been favorable to the administration overall. Of course, I received the same treatment from the Romney camp who didn't want to field questions about the candidates real views on a auto industry restructuring or his wild claims about Chrysler moving Jeep production to China.

    For the administration, this is disgraceful. I lender I visited recently told me about a regulator who was upset because the lender had copies of drivers licenses in the files, which according to the regulator, was clear evidence of discrimination. After all, you could determine skin color and gender from the picture on the license. So now I guess we don't need to have documentation on the identity of the person we're loaning money too? And if a customer comes in in person do we put a bag over them first?

    So maybe we also need to not use names for borrowers because someone might figure out that my wife is Japanese because her last name is Nakamura and double discriminate against her because she is both female and Japanese.

    Then there is the testimony at one of the roundtables where a generals wife was incensed because members of the military weren't allowed to put the lender's collateral into a container and ship it off the continent to another country.

    You can't make this stuff up, folks..

  4. 4. Texas F&I [ May 13, 2013 @ 08:32AM ]

    From all the stories we are reading in regards to the CFPB and Dealer F&I:

    - The CFPB get's to interpret the law to fit their point of view. And trust me, their point of view is that every dollar of dealer finance profit (including GAP, Credit Life, A&H, ESA, etc) is a dollar that is "harming" the public.

    -The CFPB get's to decide if you are guilty. Why are you guilty? Because you aren't conforming to their view of the law and how things should be.

    -The CFPB then get's to sue you or level a fine.

    Judge, Jury, Executioner.

    Does anyone else see a problem with this? Who is watching the watchers?

    I hope that the dealers, lenders, and trade associations stand up to this Chicago style shakedown and fight this every step of the way.

    They act as if every dollar of F&I profit just evaporates into the air after it's taken from the customers pocket. Those dollars that are "harming" the consumer are going right back into the local community through dealership employees spending their paychecks, tax dollars, and the TENS IF NOT HUNDREDS OF THOUSANDS of dollars that local dealerships donate to their communities through sponsorships, scholarships, etc.

    This isn't about protecting minorities, that's just a means to an end.

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