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Done Deal

Game Almost Over

With the CFPB’s controversial guidance officially repealed, the editor delves into what the bureau was really after in its targeting of dealer participation.

May 30, 2018

Nothing captured the industry’s frustrations over the last five years more than the heated exchange between Congressman Mike Kelly (R-Pa.), whose family has operated Kelly Motors for more than 60 years, and Congresswoman Maxine Waters (D-Calif.) just prior to the U.S. House’s May 8 approval of the resolution of disapproval of the Consumer Financial Protection Bureau’s March 2013 guidance on dealer participation.

"See, I don’t believe this was about white vs. people of color. This was about the bureau’s concern that when you negotiate, you use subconscious mechanisms called “heuristics” to quickly determine where you think you can go to get a deal. And it’s based on past experiences with people, based on biases of what you think, who has the information and who doesn’t."

Appalled by the arguments made against the resolution, including a lawmaker’s comment that its passage would “actually encourage discrimination against people of color,” Kelly said he was “greatly offended as a member of the automobile industry.” He asked why the debate had been reduced to discrimination, and reminded lawmakers that it’s dealers whose names are on Little League fields, in high school programs, and on charity lists “of who takes care of people.” He also charged the opposition with being unfamiliar with how dealers operate.

“We are doing the same thing every day that you are doing. We are trying to make sure that we’re making America great, every day and every way,” he said. “And the best way to do that is to stop talking about discrimination and start talking about the nation. We’re coming together as a people in spite of what you say.”

Waters shot back. “I want you to know that I am more offended as an African-American woman than you will ever be,” she said. “And this business about making America great again, it is your president that’s dividing this country. And don’t you dare talk to me like that and think that somehow women don’t understand what happens on the floor of automobile dealers. … My husband was in the car business. I know a lot about it.”

As you know, the bureau’s controversial guidance claimed that finance source policies that allow you to mark up interest rates as compensation for services rendered create a significant risk of unintentional, disparate impact discrimination. The purpose of the compliance bulletin was to tell indirect finance sources that the bureau would hold them responsible for any unlawful, discriminatory markups.

On Monday, May 21, dealers nationwide declared “Game Over!” as President Trump officially undid the bureau’s guidance by putting his pen to the Congress-approved resolution aimed at repealing it. Now that it’s a done deal, I want to take a look at what the bureau was after.

See, I don’t believe this was about white vs. people of color. This was about the bureau’s concern that when you negotiate, you use subconscious mechanisms called “heuristics” to quickly determine where you think you can go to get a deal. And it’s based on past experiences with people, based on biases of what you think, who has the information and who doesn’t.

And that’s what the bureau — right or wrong — attempted to remove from F&I transactions when it targeted rate markups. Its directors felt the very nature of such transactions, which is bargaining to get the best you can for the dealership, invited those biases.

Look, eradicating discrimination from vehicle finance transactions is a worthy endeavor, but the discretion the bureau was trying to regulate had nothing to do with a creditor’s determination of a customer’s creditworthiness. That’s included in the buy rate. What it was targeting was the discretion being applied to what is rightfully owed dealers.

So what it was essentially attempting to regulate were markdowns, or discounts customers could earn by securing a competing credit offer before coming to the dealership. After five years of covering this, I truly wonder if the CFPB understood that.

And I never could quite understand how the bureau could sue finance sources based on a guess — an educated guess but a guess nonetheless. Personally, I think the bureau’s biggest mistake was its unwillingness to work with the industry. I mean, the National Automobile Dealers Association’s Fair Credit Compliance Policy & Program was a great first step toward addressing the CFPB’s concerns, but the bureau refused to endorse it.

I will say that if there’s anything positive to come out of the last five years, it’s that program. It serves as the perfect defense against discriminatory claims made by plaintiff’s attorneys and state regulators. Keep in mind 16 state attorneys general have vowed to take up the CFPB’s torch.

A lobbyist once described his work as simply removing obstacles standing in the way of a solution that satisfies both sides of an issue. And that’s exactly what the NADA, along with a number of other industry trade groups, did over the last five years. And considering what the industry was up against, Congress’ approval of the resolution of disapproval will go down as a monumental moment in the association’s history.

Comments

  1. 1. Mad Marv [ May 31, 2018 @ 09:36AM ]

    Thoughtfully written and well researched. Great job, Greg!!

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