Johnny Carson, the legendary late-night TV host of “The Tonight Show,” had a recurring comedic role as Carnac the Magnificent, a “mystic from the East” who could psychically “divine” unknown answers to unseen questions. Every year, about this time, someone asks me to do a Carnac-style “predictions” article for the upcoming year. That request requires me to rummage around in the back of my closet, pull out my crystal ball, dust it off, and see what’s going to come to pass.
Unlike Johnny, when I try this, all I ever see is a clear glass ball, so I asked three of our experienced auto sales, finance, and lease lawyers to chime in with their prognostications.
Eric Johnson was the first to respond to my call, followed by Nikki Munro, then Patty Covington. They hail, respectively, from the Oklahoma, Maryland, and Virginia offices of Hudson Cook, LLP. Here are their predictions for what issues will have the greatest impact on auto financing in 2020.
• Consumer Financial Protection Bureau Director Kathy Kraninger will continue to tout the CFPB’s top priority as consumer education, but her message will not be well received by the supervision and enforcement staff. The staff will continue to push the envelope in examinations and enforcement actions.
• Congressional pressure on Director Kraninger and the Bureau’s alleged soft enforcement stance will increase, leading to more enforcement actions and consumer refunds in 2020 than in 2019.
• State attorneys general and state regulators will pick up the perceived slack in CFPB enforcement, particularly in the “blue” states. Massachusetts will lead the charge.
• Auto finance examinations will continue, and most issues will be handled in the examination process rather than in enforcement. Expect a big focus on repossession issues.
• States will jump on the California consumer privacy bandwagon and attempt to enact their versions of a consumer privacy act.
• Auto dealers and finance companies will look to go all-electronic, implementing federal E-Sign compliant solutions. There will be continued pressure on vendors to get rid of the paper. Consumer advocates don’t like electronic transactions, citing more room for abuse, but, nevertheless, the show will go on.
• Most of the industry will not be ready to implement California’s Consumer Privacy Act by January 1, and are not prepared for the onslaught of privacy laws in the near future. What happens in California never stays in California. Look for new and improved (or not improved) privacy laws coming to a state near you.
• Auto direct loan products will continue to expand, possibly adopting a bank partnership model to keep rates lower.
• As for federal and state legislative and regulatory developments, she believes:
•States will continue to try to implement statutes and regulations to force auto creditors to collect information on race that violates the Equal Credit Opportunity Act. The industry will fight back.
•Vehicle protection product costs and refunds upon cancellation will be a focus of state and federal regulators. The CFPB and many regulators take a negative position on the sale of these products, citing discrimination and high-pressure sales tactics, which may translate into an aggressive enforcement of obligations or perceived obligations related to creditor refunds on cancellation.
•The Department of Defense will amend the regulation implementing the Military-Lending Act. However, it would be surprising if any amendment affected the sale of credit ancillary products by dealers as limited by the response to Q&A #2 from the interpretive rule.
•State legislators will probably continue to try to ban starter interrupt technology, requiring the industry to explain the consumer benefits, and ultimately engage with legislators and regulators on common-sense regulation of the technology. Hopefully state legislators and regulators will be open to industry collaboration.
• Dealer fraud is what many state attorneys general and the Federal Trade Commission will be looking for and seizing on in 2020. We’ve seen some of it in 2019, and the trend will likely continue upward in 2020. If your dealership is engaging in any type of questionable acts, stop! There will be more active pursuit next year.
• Privacy and data security will be the theme of many 2020 state legislatures seeking to be a part of the first wave prompted by California’s Consumer Privacy Act. Washington, New York, Massachusetts, and New Jersey are states to watch, along with the rest of the northeast and the northwest, and a smattering of states in the mid-west, like Illinois.
• The CFPB will regulate auto finance companies subject to supervision more heavy-handedly behind the scenes, along with state regulators who have been taking more assertive postures on what is required for compliance with the law. Dealers will feel the effect. For example, auto finance companies may become more demanding (or prickly) with refunds related to vehicle protection products, not just GAP waivers.
• Dealers may see an increase in demand letters, claims, and/or lawsuits asserting violations of the Americans with Disabilities Act, particularly as to website accessibility by persons with disabilities.
• There will be a revisit of the Military Lending Act, but there is no predicting how that will go.
Carnac’s Mystical Musings
As Carnac, I can’t entirely escape without tossing in a couple of things myself, so here it goes.
• Technology will continue its unstoppable progress, manifesting itself in some interesting ways, including advances in the use of paperless transactions.
• Somewhere, smart lawyers will figure out one or more ways for clients to tiptoe through all those tricky state and federal laws and sell transportation without selling cars. We’ll see a number of variations on so-called “subscription” models.
• Regulators and attorneys general will turn up the heat on car pricing and other practices of buy-here, pay-here dealers. The law they make by doing so will affect all the other players in the market, especially the used car market.
So that’s our take on what we think will appear on the 2020 horizon. If you don’t like our predictions, though, you’re free to try your hand at this game. Just jot your ideas on the back of a $20 bill and send it to us.
Thomas B. Hudson Esq. was a founding partner of Hudson Cook LLP and is now of counsel in the firm’s Maryland office. He is the CEO of CounselorLibrary.com LLC and is a frequent speaker and writer on a variety of consumer credit topics. Contact him at [email protected]. HC No. 4845-0313-0800