The CFPB's Misguided Crusade
AFIP's executive director has some choice words for President Obama, Sen. Warren and the 'smartest guys in the room.'
In retrospect, it would be difficult to rank 2015 among our federal government’s finest years — on the world stage, on the home front or for our industry. Granted, there are as many explanations as to why as there are pundits willing to offer them. However, many would agree that the Affordable Care Act (aka Obamacare) and the Dodd-Frank Act ran long on hubris and short on logic.
Obama’s combination of arrogance and self-perceived omniscience — foreshadowed during his campaign but not aggressively challenged by opponents — found eager confederates in the Democrats controlling both houses of Congress during his first two years in office. The 111th Congress had the distinction of being the most experienced in history, which is a politically correct way of saying that the place was chock full of old politicos who’d been inside the beltway long enough to think that they — and the new guy in charge — knew what was best for the American people.
The end result was preordained. A scant 14 months into his presidency, Obamacare was signed into law. By the administration’s own count, the regulations associated with the act filled 20,000 pages. Then, less than six months later, President Obama signed the 848-page Dodd-Frank Wall Street Reform and Consumer Protection Act — and 398 new regulations hit the books.
Granted, Obama entered the White House in the throes of a recession, second only to the Great Depression, and with a healthcare system in need of something more than a bandage. Unfortunately, both programs were beset by the ”too”s.
They were too hastily drafted, and too complicated for the legislators who voted for them — and the American people impacted by them — to understand. They were too complex to be effectively administered. They were too broad in scope — failed attempts to address every conceivable contingency at the onset with single pieces of legislation. They were also too expensive — crafted with barely a nod to fiscal feasibility or accountability.
The two acts reaffirm the lesson of history: Government is always at its worst when it looks solely to itself for solutions to the people’s problems.
Let’s address something closer to home: the Dodd-Frank Act-implemented Consumer Financial Protection Bureau (CFPB). Even the most ardent proponents of free enterprise recognize that the needs of both the buyer and the seller cannot be adequately met without the presence of an overarching regulatory authority. The assumption is that the regulatory authority gives equal weight to the best interests of both the buyer and the seller.
I recently reviewed a synopsis of the Dodd-Frank Act that included the CFPB’s objectives. I don’t recall “franchised car dealers” being directly mentioned, even once. If hubris and omniscience will put you at the brink of a precipice, add bias and you’re over the edge. In my view, the CFPB’s actions are the personification of all three.
The fact that Sen. Elizabeth Warren (D-Mass.) used an inaccurate or mischaracterized study to announce that the $26 billion collected by car dealers who arranged the financing “should remain in the pockets of the car buyers,” though inexcusable, is not surprising. Politicians will glom onto anything that serves their agendas.
However, I hold the CFPB’s lawyers, steeped in the Socratic method, to a higher standard. The impetus for regulatory oversight is normally a precipitating catalyst, such as singular or serial breaches of an existing state or federal regulation, a material violation of the public’s trust, media or public pressure or the result of credible research.
Not in this case. Missing were any references to empirically derived evidence of:
Consumers who opt for in-store financing paying a higher APR than those who arrange their own financing.
A statistically significant percentage of the protected classes paying a higher markup over the buy rate than similarly situated buyers.
The markup charged the majority of car buyers — usually in the 200 to 250 basis-point range established by the California Car Buyer’s Bill of Rights — being excessive.
The actual number of basis points required to fairly reimburse dealers for expenses incurred on behalf of the funding source accepting assignment of the retail installment sales contract — including a reasonable apportionment of the funding-related profit.
But if you’ve been billed as an elite government agency, see yourselves as the smartest folks in the room, and harbor a longstanding negative bias against car dealers — who are, in fact, beyond your direct control — then cutting corners to get at them, as recently published reports appear to indicate, would seem a justifiable means to an end.
David Robertson is executive director of the Association of Finance & Insurance Professionals (AFIP). Email him at david.robertson@bobit.com.
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