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Lost in Translation

August 2010, F&I and Showroom - Feature

by Tom Hudson and Michael Benoit

Some car dealers are exempt from the regulatory reach of the Consumer Financial Protection Bureau created by the Dodd-Frank Act, the moniker hung on the federal financial reform legislation. But some dealers aren’t. Determining which ones are in and which ones are out requires a review of the language in the bill dealing with the exemption.

Congressional bills can be difficult to read, and this one’s no different. Below, we’ve set forth the auto dealer exclusion provision in the bill and what we hope is a mostly English translation of it.

What the Bill Says: “SEC. 1029. EXCLUSION FOR AUTO DEALERS

“(a) Sale, Servicing, and Leasing of Motor Vehicles Excluded — Except as permitted in subsection (b), the Bureau may not exercise any rulemaking, supervisory, enforcement or any other authority, including any authority to order assessments, over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.”

Translation: Auto dealers primarily engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both, are excluded from the regulatory reach of the CFPB. Note that the dealer must have a servicing function and a sales and/or leasing function.  Because few independent dealers maintain a service department, that limits the exclusion to franchise dealers in most instances.

What the Bill Says: “(b) CERTAIN FUNCTIONS EXCEPTED — Subsection (a) shall not apply to any person, to the extent that such person:

“(1) provides consumers with any services related to residential or commercial mortgages or self financing transactions involving real property ...”

Translation: The exclusion won’t apply to any motor vehicle dealer engaged in consumer real-estate financing, regardless of whether he would be excluded in subsection (a).

What the Bill Says: “... (2) operates a line of business that (A) involves the extension of retail credit or retail leases involving motor vehicles; and (B) in which — (i) the extension of retail credit or retail leases are provided directly to consumers; and (ii) the contract governing such extension of retail credit or retail leases is not routinely assigned to an unaffiliated third-party finance or leasing source; or …”

Translation: There is neither an exclusion for dealers who engage in consumer lease and installment sale financing, nor for those who keep those obligations or sell them to affiliated finance companies.

What the Bill Says: “… (3) offers or provides a consumer financial product or service not involving or related to the sale, financing, leasing, rental, repair, refurbishment, maintenance, or other servicing of motor vehicles, motor vehicle parts, or any related or ancillary product or service.”

Translation: The exclusion won’t apply to a dealer who offers or provides consumer financial services not related to the vehicle sale or lease (e.g., it would not apply to a dealer who sells homeowners insurance in addition to selling or leasing vehicles).

What the Bill Says: “(c) PRESERVATION OF AUTHORITIES OF OTHER AGENCIES — Except as provided in subsections (b) and (d), nothing in this title, including subtitle F, shall be construed as modifying, limiting, or superseding the operation of any provision of Federal law, or otherwise affecting the authority of the Board of Governors, the Federal Trade Commission, or any other Federal agency, with respect to a person described in subsection (a).”

Translation: This section keeps intact the authority of other agencies with respect to dealers. So, even if a dealership qualifies for the exclusion, it will still be regulated in the same manner it has been to date.

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