Despite all the media attention the national healthcare debate has received in the last several months, a lot has been going on in Congress on the financial services reform front. Admittedly, financial reform legislation is not nearly as sexy or interesting as the healthcare brouhaha, but information in the news media has been sorely lacking.
Of interest to auto dealers is the progress of the Consumer Financial Protection Agency Act of 2009 (CFPA). It is one component of the financial reform blueprint the Obama administration unveiled in June, and one the House Financial Services Committee, chaired by Rep. Barney Frank (D-Mass.), took a crack at right away. Its purpose is to create a new federal agency — conveniently called the Consumer Financial Protection Agency — to oversee consumer protections with respect to a range of financial services products and providers.
Dealers were under the jurisdiction of the proposed agency from the outset, particularly with respect to their F&I activities. This was a worrisome thing for dealers, as the new agency would be required to examine and supervise dealers on consumer protection matters to much the same extent as banks have experienced for decades. Furthermore, the proposed agency would have vast and unbridled authority to decide what sorts of products or activities are “unfair” or “abusive.”
The bill made it out of the committee on Oct. 22, but not before 24-plus amendments were attached to it. Fortunately for dealers, one amendment exempts most franchise dealers and many independents from the jurisdiction of the new agency. You can direct your thanks to the efforts of my good friends at the National Automobile Dealers Association, who worked tirelessly to educate the committee about your business and why regulation by this new agency is not a good idea. It was an incredible effort that really bore fruit.
Despite this, you should not rest too easy. Unfortunately, when it comes to Congress, it’s not over until it’s over, and the next step is a vote on the floor of the full House. Without a doubt, additional amendments will be offered — members of Congress do like to put their individual stamps on things — and one could quite possibly be an amendment to undo the exemption. And even if it makes it out of the House with the exemption intact, there is still the Senate to deal with. Fortunately, prospects may be better there.
The moral of this story is that as an industry, you need to remain diligent and in touch with what’s going on at the state and federal levels that can adversely affect your business. Congress is in a relatively foul mood when it comes to financial services providers, and they don’t always direct their anger at those who deserve it. In my view, the CFPA, a bill meant to protect against the bad acts that caused the mortgage meltdown and the subsequent economic crisis, is the equivalent of taking a sledgehammer to an ant. It imposes a rash of supervision over providers who had nothing to do with the crises.
Over the next year or two, states will want to get in on the act as well. Most of the consumer protection legislation being considered by Congress encourages states to enact stiffer restrictions and consumer protections. Politicians aren’t always the most knowledgeable about the realities of business, and we all need to pay attention when legislation that has the potential to severely disrupt an industry (like the CFPA) comes down the pike. If ever there was a time to be engaged, this is it.
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. E-mail him at [email protected]. Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.