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The Gift That Keeps on Giving

Washington is working overtime these days, so expect 2010 to be a bumpy ride on the regulatory front.

by Michael Benoit
February 1, 2010
4 min to read


As the holiday season wanes, don’t despair if it was a lean one. The Feds (and, for some of you, the manufacturers) have some gifts for you that you’ll be playing with for a long time to come.

First, those of you who lost your General Motors or Chrysler franchises will now have a chance to try to reclaim them through a Congression-ally mandated arbitration process. By the time this gets to print, the filing period will likely have passed, but trust me, those of you affected by this know what’s going on. While GM has already given back a number of franchises to previously terminated dealers, it expects to reinstate quite a bit more (although not nearly the number that lost their franchises).

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Chrysler, on the other hand, is by all accounts going to aggressively fight this. Recent articles quote Chrysler’s CEO bemoaning the unfairness of Chrysler having to spend its money on what it believes is old news. Interesting, as last I recall, a good amount of Chrysler’s money was provided by the American taxpayer. Maybe that memo didn’t get to the Fiat folks. Stay tuned and take some Dramamine, as the legal filings will be going a mile a minute.

For you lucky ones who can struggle to earn a living without having to fight for your franchise, Washington has some gifts for you as well. On Dec. 11, the House of Representatives passed the Wall Street Reform and Consumer Protection Act (H.R. 4173) by a 223-202 vote. As discussed in previous columns, it includes legislation that would create the Consumer Financial Protection Agency (CFPA), a new federal agency solely devoted to protecting Americans from unfair and abusive financial products and services.

Now, most franchised dealers are carved out of the bill, but rumor has it that the Senate is not so enamored of that exemption. Your trade association in Washington will be working hard to preserve it, but who knows what the final legislation will look like. Note to the Senate: There’s a rational reason for excluding dealers (and a number of other financial services providers) from the new law: They weren’t the cause of the financial crisis.

Another new rule came out of the Federal Reserve Board (FRB) and the Federal Trade Commission (FTC). It was mandated by Congress in 2003, and the agencies took so long to write the rule (can you say “glacial”?) that I’d almost forgotten about it. I’m talking about the Risk-Based Pricing Rules mandated by the Fair and Accurate Credit Transactions Act of 2003.

The FRB and FTC released the rules on Dec. 22, six years after Congress directed the FRB and the FTC to adopt risk-based pricing rules. The rules generally require you to provide a consumer with a notice when, based on the consumer’s credit report, you provide credit to the consumer on less favorable terms than you provide to other consumers. The main point of the rules is to provide consumers with a free credit report per year, as the two agencies want consumers to be able to check the report’s accuracy.

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Risk-based pricing refers to the practice of setting or adjusting the price and other terms of credit provided to a particular consumer based on the consumer’s creditworthiness. This is something that dealers do every time credit is offered to a consumer — some get better rates and terms than others. The new rule provides several methods for determining which consumers must receive risk-based pricing notices, as well as an alternative — that is, you can provide consumers who apply for credit with a free credit score and specified information related to their score. This new rule takes effect Jan. 1, 2011, and will impose disclosure and operational burdens on you. Note to dealers: A year may seem like a long time, but in the world of regulation, it’s not. So, don’t dally.

If you haven’t already, fasten your seat belts, folks, as 2010 is going to be a bumpy ride. The gifts from Washington just never stop coming.

Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. He can be reached at michael.benoit@bobit.com. Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.

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