Actions Speak Louder

So, I finally got a response from the Consumer Financial Protection Bureau (CFPB). I read that Rick Hackett was leaving the bureau in the CFPB Monitor, a blog written by a Washington, D.C., firm that defends companies against regulatory troubles.

Hackett was hired in August 2011 as assistant director to basically watch over auto finance. So, I got on the horn and dialed the CFPB to get a confirmation. As expected, no one answered. I left a voicemail. I then sent an e-mail to two spokespersons in the bureau communication’s department. Knowing I probably wouldn’t get a response, I decided to toss in eight additional questions. I hit “Send” at 9:25 a.m.

At 11:16 a.m., I got my response. It was from the CFPB’s Moira Vahey. Here’s what she wrote: “We can confirm Rick Hackett will be departing the bureau.” Yup, that’s it.

The e-mail did ask what my deadline was. I wondered at that point if she had read my questions, because I did place a couple of snarky queries at the top. What I wanted to know was if Hackett’s departure would disrupt the bureau’s activities. I got my answer a week later, but it wasn’t from Vahey.

On June 27, the CFPB announced its first major public enforcement action against an auto finance source, ordering U.S. Bank and its nonbank partner, Dealers’ Financial Services (DFS), to return $6.5 million to service members participating in their Military Installment Loans and Educational Services (MILES) program.

The good news is I didn’t see any mention of dealer involvement. Instead, it involved an online program that offers to pre-approve credit-challenged military personnel for car loans before they pick their vehicle. Here’s a statement I found in a Dec. 4, 2012, press release about the program: “Company’s founders were incensed with how unprincipled dealers treated members of our nation’s military who needed a car. Unprincipled dealers and lenders sometimes structured deals with a high likelihood of default and repossession.”

Ouch, right? Truth is, the Truth in Lending Act and the Dodd-Frank Wall Street Reform and Consumer Protection violations listed by the CFPB could be happening in any dealership. So don’t go rubbing that press release in anyone’s faces. 

As for U.S. Bank, the CFPB felt it didn’t properly disclose to servicemembers the fees associated with the loans it originates. For instance, the MILES program required car buyers to repay their auto loans using the military allotment system, which deducts payments directly from a military member’s paycheck before that salary is deposited in his or her bank account. The fees associated with these deductions weren’t disclosed, the CFPB charged. There were also issues with how payment schedules were disclosed, a problem that resulted in an extra $75 over the life of the MILES loan, the CFPB said.

What I really wanted to talk about were the issues the bureau raised regarding DFS. They didn’t like the way that DFS marketed its service contract and GAP products. Regarding its service contract, DFS claimed in its marketing materials that the F&I protection would add just a “few dollars” a day to a customer’s monthly payment. According to the CFPB, DFS needs to add $41 dollars to that claim.

As for GAP, DFS told some customers that the protection costs only a few cents a day. By the bureau’s calculations, DFS staffers were 40 cents short of the actual daily cost. The CFPB also felt DFS “deceptively suggested” its service contract would cover all expensive repairs, when many basic parts were not covered.

Guys, I hope you’re taking notes. Because I’ve heard similar lines being used by F&I managers I’ve met over the years, even some trainers. We better make sure we’re making the right calculations when we toss out lines like, “For the cost of a Starbucks coffee per day …”

I don’t think there was any malicious intent on the part of either U.S. Bank or DFS. In fact, the CFPB didn’t fine either company. I think it’s because these violations sound more like people going off script or companies not checking calculations or having attorneys review marketing copy.

As for whether I think the CFPB was hurt by the loss of Hackett, well, here’s what the National Automotive Finance Association’s Jack Tracey said about the former regulator: “Rick Hackett represented the best kind of regulator the auto financing industry could hope for ... He strived to meet with industry leaders to hear their views. He attempted to develop policy directed at the problems and was concerned about any unintended consequences resulting from policy. His stay at the CFPB was too short.”