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.
What the Bill Says: “(d) FEDERAL TRADE COMMISSION AUTHORITY — Notwithstanding section 18 of the Federal Trade Commission Act, the [FTC] is authorized to prescribe rules under sections 5 and 18(a)(1)(B) of the Federal Trade Commission Act, in accordance with section 553 of title 5, United States Code, with respect to a person described in subsection (a).”
Translation: This section expands the FTC’s authority with respect to motor vehicle dealers, as it will now have express authority to write rules regulating dealers with respect to unfair and deceptive practices.
The FTC also gets new authority to make rules defining unfair and deceptive practices in accordance with the federal Administrative Procedures Act, which will allow it to draft and implement a rule in as little as six months. So, dealers exempt from the CFPB’s authority shouldn’t be overly happy — Congress giveth with one hand and taketh away with the other.
What the Bill Says: “(e) COORDINATION WITH OFFICE OF SERVICE MEMBER AFFAIRS — The Board of Governors and the [FTC] shall coordinate with the Office of Service Member Affairs, to ensure that — (1) service members and their families are educated and empowered to make better informed decisions regarding consumer financial products and services offered by motor vehicle dealers, with a focus on motor vehicle dealers in the proximity of military installations; and (2) complaints by service members and their families concerning such motor vehicle dealers are effectively monitored and responded to, and where appropriate, enforcement action is pursued by the authorized agencies.
Translation: The Federal Reserve Board and the FTC will now be required to work with the Office of Service Member Affairs to provide education regarding auto finance. It also appears that the legislation mandates these agencies to focus on specific dealers in close geographical proximity to military bases.
The agencies are also required to monitor and respond to complaints about dealers from service members. Where warranted, the agencies are to see that the appropriate regulators undertake enforcement actions.
What the Bill Says: “(f) DEFINITIONS — For purposes of this section, the following definitions shall apply:
“(1) MOTOR VEHICLE — The term ‘motor vehicle’ means (A) any self-propelled vehicle designed for transporting persons or property on a street, highway, or other road; (B) recreational boats and marine equipment; (C) motorcycles; (D) motor homes, recreational vehicle trailers, and slide-in campers, as those terms are defined in sections 571.3 and 575.103 (d) of title 49, Code of Federal Regulations, or any successor thereto; and (E) other vehicles that are titled and sold through dealers.”
Translation: The definitions are fairly straightforward, but raise some interesting questions regarding certain goods in certain states (e.g., an all-terrain vehicle not required by law to be titled).
What the Bill Says: “(2) MOTOR VEHICLE DEALER — The term ‘motor vehicle dealer’ means any person or resident in the United States, or any territory of the United States, who — (A) is licensed by a State, a territory of the United States, or the District of Columbia to engage in the sale of motor vehicles; and (B) takes title to, holds an ownership in, or takes physical custody of motor vehicles.”
Translation: Again, mostly straight-forward, but where do companies fit that only lease cars and are not licensed to sell them? What about rent-to-own operation? What about consignments in states where they are permitted?
So, there’s the bill’s auto dealer exclusion language in all its majesty, as well as our initial attempt to translate it. Since we haven’t digested all 2,000 pages of the bill, it may be that dealers foreclosed from the Section 1029 exclusion could qualify for other exclusions contained in the bill, but that remains to be seen.
We suspect that as the dust settles, more questions will arise. When they do, check back with us, as, like you, we’re still trying to figure out what it all means.
Thomas B. Hudson and Michael Benoit are partners in the law firm of Hudson Cook LLP. Both are frequent speakers and writers on a variety of topics. E-mail them at [email protected] or at [email protected] HC# 4832-3433-0118. 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.