The editor requested that I take a look into my crystal ball and offer a few regulatory predictions for 2014. But I didn’t need one. Instead, my experience with regulators in 2013 and spending hours studying their websites, press releases and guidance bulletins is all I needed to know what’s coming this year.
1. “Larger Participant” Rule: In the first or second quarter, I expect to see the bureau issue its “larger participant rule” for the auto segment. It will apply to pretty much everyone in this space minus those excluded from the CFPB’s supervision (i.e., most dealers). I’m not sure who the bureau will deem a larger participant, but I have some suspects.
See, the CFPB has gone through this “larger participant” exercise in other consumer credit industries. In the consumer reporting segment, the bureau defined larger participants as those entities with more than $7 million in annual receipts. That group consisted of about 30 companies that accounted for about 94% of that market’s annual receipts.
When the bureau looked at the debt collection industry, it determined that larger participants included third-party debt collectors, debt buyers and collections attorneys with more than $10 million in annual receipts. That group consisted of 175 debt collectors that accounted for more than 60% of that industry’s annual receipts. The CFPB did the same for student loan servicers, defining larger participants as companies with account volume exceeding $1 million. That group accounted for between 71% and 93% of that market.
So we suspect the CFPB’s definition of a larger participant in auto will account for about 75% to 90% of the industry’s annual receipts.
2. Complaint Database: Currently, a customer can submit a complaint about an auto loan, and the bureau will then forward it to the company named. The company then has 15 days to respond, with most complaints expected to be closed within 60 days. Well, I expect finance sources will be visiting the complaint database and the CFPB more often in 2014.
3. Civil Investigative Demand: One of the tools the CFPB’s Office of Enforcement uses to gather information and materials relevant to an investigation is the civil investigative demand (CID). If you get one, you are expected to stop what you’re doing and collect the documents the bureau is requesting. You’ll also want to get one or more lawyers, as well as an outside company to gather and coordinate the delivery of the information being requested.
I expect see a lot more companies getting CIDs from the CFPB this year. While the CIDs will most likely center on advertising, credit discrimination, military credit and consumer reporting, I expect to see more CIDs on credit discrimination and spot deliveries.
4. Credit Discrimination: Although most franchised dealers are exempt from CFPB oversight, I think dealers will see their discretion with respect to dealer participation dwindle (maybe out of existence) as a result of CFPB pressure on finance companies. In fact, finance sources are already telling dealers they “might” have a discrimination issue on their hands. Well, I predict it won’t end with the letters.
I also expect enforcement actions that rely on the disparate impact theory to continue since the Mount Holly case was settled in November. It was set to go before the Supreme Court early last month and involved a challenge to the use of disparate impact to determine discrimination. If the Supreme Court had ruled that the theory could not be used in the enforcement action related to the case, it would have torpedoed the CFPB’s use of the theory to spot violations of the Equal Credit Opportunity Act.
5. Arbitration: In 2012, some legal insiders predicted arbitration would go away. As of mid-December, it’s still here. However, on Dec. 12, 2013, the CFPB released preliminary research on the use of arbitration clauses in connection with credit cards, checking accounts, payday loans and prepaid cards. On that same day, the CFPB held a field hearing in Dallas. Based on the report and CFPB Director Richard Cordray’s remarks at the hearing, mandatory pre-dispute arbitration may be heading the way of dealer participation: severely restricted or non-existent sometime in 2014.
So have a happy 2014. May you sell a lot of cars and comply with the law.