It’s that time of year again, when publications I write for ask me to predict what next year’s legal developments will be. I always wonder if these media outlets save these prognostication articles and compare it with the following year’s to see if this prognosticator is worth reading. Given my track record, I highly doubt it, or they wouldn’t come back every year with the same request.
That aside, I actually do have a few thoughts about some things that will and won’t happen in 2013. So, with a couple of swipes of my old crystal ball, here goes.
1. The CFPB Is Here to Stay. The Consumer Financial Protection Bureau will not be dismantled. I have some friends who were convinced Republicans would take the Senate and the presidency, putting them in the driver’s seat to undo Obamacare and the Dodd-Frank Act. Well, that’s not how things played out.
Even if things had gone the other way, Washington, D.C., does not “uncreate” federal agencies. At most, the bureau’s critics would have sanded around the edges a bit. They might still be successful at turning the bureau into a five-person commission, getting its funding under congressional control, dislodging it from its current billet at the Federal Reserve Board and planting it at the Treasury. I’m not predicting that the critics will be successful at all three of these “reforms,” but I’m pretty sure we’ll see them make the effort.
2. The Bureau Will Make Waves in Auto Finance. Watch for the CFPB to do some unsettling things. I suspect we’ll see enforcement actions dealing with discrimination in auto finance. And whenever the bureau determines it can engage in new rulemaking, I wouldn’t be surprised if it targets dealer participation first. That’s not to say that outlawing dealer compensation for F&I activities is necessarily in the works, but requiring that compensation be in the form of a fixed flat fee wouldn’t surprise me.
And it won’t matter that some dealers are exempt from the bureau’s jurisdiction. Remember, the bureau has direct jurisdiction over the institutions that buy retail installment sales contracts from dealers, so it can simply decide that any form of dealer compensation other than a fixed fee is forbidden.
3. Kiss Arbitration Agreements Goodbye. The bureau, following a mandate contained in the Dodd-Frank Act, is currently “studying” the use of mandatory arbitration agreements by creditors (that includes dealers). And it’s doing so like a spider “studies” a fly. I bet the bureau will ignore those independent studies that show consumers are well served by the arbitration process, and will side with the class-action lawyers who want to do away with the use of arbitration agreements because it takes away the leverage they get when they threaten a defendant with a class-action lawsuit. The smart money says we’ll see an across-the-board prohibition of arbitration agreements in connection with consumer financial services.
Based on some developments in the mortgage area, it’s likely that the bureau will try to redefine the critical Truth in Lending Act terms “finance charge” and “annual percentage rate” in such a way that the cost of things like credit insurance and GAP (presently excluded) are required to be included. Expect a big fight over this one. I’m not smart enough to predict a winner.
And make sure to add the phrase “compliance management system” to your vocabulary. You probably don’t have one now, but you will.
4. Don’t Take Your Eyes Off of the FTC. The Federal Trade Commission had been pretty much asleep for three decades or so as far as bringing enforcement actions against car dealers. Since the CFPB’s creation, however, the FTC has stormed into the arena by scheduling “Roundtables,” investigating dealer compliance with the “holder rule,” and by bringing actions against dealers for negative equity, advertising and privacy.
Expect continued vigorous enforcement activity by the FTC in 2013. If I were a betting man, I’d bet that the FTC’s targets will include advertisements (again), spot delivery practices and payment packing.
So, that’s my read on what 2013 holds for dealers and finance companies. Now, cut out this article, put it in your desk drawer, and make a note on your calendar to pull it out at the end of 2013. We’ll see how I do.
Thomas B. Hudson is a partner in the law firm of Hudson Cook LLP and the author of several widely read compliance manuals available at CounselorLibrary.com. ©Counselor Library.com 2012, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only, to F&I and Showroom magazine. HC# 4849-4424-6545 (02/13).